chapter 3
What is the cost function?
Total Cost = Fixed Cost + (Variable Rate x Units of Output)
Is the sequential method or the direct method more accurate?
Sequential Method
UC Co. rents production equipment. They got the following data for the past four months:
Month Equipment Cost Machine Hours
January $9,500 400
February $12,000 700
March $14,500 1,000
April $11,000 600
Using the high–low method, calculate the fixed cost of renting the equipment.
Fixed cost=9,500−(400×8.33) =9,500−3,332= $6,167
Predetermined Overhead Rate = Estimated Annual Overhead / ______
Predetermined Overhead Rate = Estimated Annual Overhead / Estimated Annual Activity Level
In the most recent quarter, the company produced 1,215 earbuds and sold 900 of them at a price of $85 each.
Production costs:
Direct Materials: $15 per earbud
Direct Labor: $7 per earbud
Variable Manufacturing Overhead: $5 per earbud
Fixed Manufacturing Overhead: $4860 for the quarter
Find the COGS under Absorption Costing
Fixed overhead per unit= 4860/ 1215 = 4
Total cost per unit=15+7+5+4=31
COGS = 900×31= 27,900
A bakery estimated that overhead costs would be $12,000 and direct labor hours would be 2,000 hours for baking cupcakes. At the end of the year, the bakery actually incurred $14,500 in overhead costs and used 2,500 direct labor hours.
What is the overhead variance?
Overhead Variance=Actual Overhead−Applied Overhead=14,500−15,000=−500
500 Overapplied