Overhead chapter 8
Budgeted overhead divided by budgeted activity level
What is: Overhead allocation rate for normal costing
Fixed manufacturing overhead costs are recognized as period costs when incurred using
Variable costing
What happens if the quantity produced decreases from the prior period?
a. fixed costs per unit increase.
b. average costs per unit decrease.
c. variable costs per unit increase.
d. variable costs per unit decrease.
a.
Ending credit balance in manufacturing overhead account
Overapplied overhead
What are two reasons companies would use variable costing?
- Focus management attention on controllable (variable) costs;
- Provide no incentive for inventory build up
- Easier
The breakeven point is the point at which:
a. selling one more unit will not increase income
b. contribution margin equals fixed costs
c. total revenues equal contribution margin.
d. fixed costs divided by revenues equals zero
b.
Ahmed Karim recently began working at Luce Laminating Company as a cost accountant. In order to prepare financial statements, Ahmed was provided the following information:
Direct materials used $10,000
Direct labor $10,000
Actual overhead incurred $25,000
Manufacturing overhead applied $20,000
Beginning WIP inventory $25,000
Ending WIP inventory $35,000
Beginning FG inventory $60,000
Ending FG Inventory $45,000
Luce uses normal costing and writes off variances using the direct method. What was cost of goods manufactured for the period?
What is: $30,000
Beg WIP $25,000
+ DM 10,000
+ Dl 10,000
+ OH 20,000
- End bal $35,000
= COGM $30,000
Note that the overhead variance would be written off to COGS, not COGM.
During 2025, KM Construction sold 10,000 units, with beginning and ending units for the year of 1,000. Manufacturing costs were as follows: Variable Fixed
Mfg costs per unit $11.00 $7.00
Operating costs/unit $3.00 $2.50
What is the difference in operating income between absorption and variable costing for the year?
0 - The difference in income is based on the change in inventory. As the quantity of inventory did not change during the year, there is no difference in income.
A cost function is:
a. a process of calculating present value of projected cash flows
b. A process of allocating costs to cost centers or cost objects
c. a mathematical description of how a cost changes with changes in the level of an activity relating to that cost
d. a way to identify a cost object when there is a physical relationship between inputs and outputs.
c
Total costs = mX + Y
Boxes R Us uses normal costing and allocates overhead based on direct labor costs. Overhead was budgeted for the year at $600,000 but actual overhead was $680,000. Actual direct labor costs for the year were $325,000 and the budget was $300,000. Actual direct labor hours for the year were 16,250 and budgeted at 15,400.
Boxes prorates any under/over allocation of overhead to the applicable accounts. At year-end, amounts are:
Direct materials $100,000
WIP $200,000
FG $300,000
Cost of sales $1,500,000
Selling costs $200,000
What is the journal entry for the proration of under/over applied overhead, if any?
WIP 3,000
FG 4,500
COS 22,500
MOH 30,000
Rate: 600,000 / 300,000 = $2 per DL$
* 325,000 DL$
= Applied $650,000
Actual 680,000
Underapplied 30,000
Proration: (000s) (% total) * 30,000
WIP 200 10% 3,000
FG 300 15% 4,500
COS 1,500 75% 22,500
TOTAL 2,000 100% 30,000
BioClinic sells its product for $80 per unit. During 2025, it produced 120,000 units and sold 105,000 units. Costs per unit are: direct materials $25, direct labor $10, variable overhead $5, and variable operating expenses $3. Fixed costs are $840,000 manufacturing overhead, and $75,000 operating expenses. What is the contribution margin using variable costing?
$3,885,000
Sales 105,000 * $80 = $8,400,000
Variable COS 105,000 * $40 = 4,200,000
Variable operating 105,000 * $3 = 315,000
CONTRIBUTION MARGIN $3,885,000
Name 3 excel functions that are important to know before you start your first job
Copy/paste
IF function
VLookup
Linking
Creative Accountant CPS is a service firm and applies overhead based upon direct labor cost. For the year 2025, the actual overhead cost incurred totaled $50,000. Creative had underapplied overhead cost by $10,000. The Company utilized an overhead application rate of 50% of direct labor cost. What was the total direct labor cost incurred for the year?
What is: $80,000
Incurred $50,000
less: under applied (10,000)
Equals Applied $40,000
/ rate 50%
= Base 80,000
The following information applies to Beets Corporation:
Units produced 50,000
Beginning Inventory 1,000 Units
Ending Inventory 5,000 units
Direct materials per unit $20
Direct labor per unit $12
Variable manufacturing overhead per unit $5
Fixed manufacturing overhead $200,000
Variable operating expenses per unit $7
Fixed operating expenses $80,000
What is cost of sales using absorption costing? What is the difference in operating income between absorption and variable costing?
1. COS Absorption - $1,886,000
2. Difference in income = 16,000, ABS higher
Units sold 1,000 + 50,000 - 5,000 = 46,000
* cost/unit
DM $20, DM $12, VOH $5, FOH $4 (a) = $41
= Cost of sales $1,886,000
(a) $200,000/50,000 produced = $4U
2. Ending inventory 5,000 units
- Beg inventory 1,000
Change in inventory Quantity 4,000 units
* FOH per unit $4
= Difference in income $16,000 (ABS higher)
At a production level of 100,000 units, variable costs per unit are $1.00 and fixed costs are $50,000. If production rises to 150,000 units, what are the costs per unit for both variable and fixed costs, respectively?
a. $1.50 and $.67
b. $1.00 and $.50
c. $1.00 and $.33
d. $.67 and $.33
c.
Variable cost/unit stays constant regardless of production.
Fixed costs $50,000 / 150,000 = $.33 per unit