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# Bill Pope has developed a new device that is so exciting he is considering

## quitting his job in order to produce and market it on a large-scale basis.

Bill will rent a garage for \$300 per month for production purposes. Utilities
will cost \$40 per month. Bill has already taken an industrial design course
at the local community college to help prepare for this venture. The course
cost \$300. Bill will rent production equipment at a monthly cost of \$800.
He estimates the material cost per unit will be \$5, and the labor cost will
be \$3. He will hire workers and spend his time promoting the product. To
do this he will quit his job which pays \$3,000 per month. Advertising and
.promotion will cost \$900 per month
:Required
Complete the chart below by placing an "X" under each heading that helps
to identify the cost involved. There can be "Xs" placed under more than
one heading for a single cost, e.g., a cost might be a sunk cost, an
overhead cost and a product cost; there would be an "X" placed under
.each of these headings opposite the cost
The management of Gruwell Corporation would like to .25
investigate the possibility of basing its predetermined overhead rate on
activity at capacity rather than on the estimated amount of activity for the
year. The company's controller has provided an example to illustrate how
this new system would work. In this example, the allocation base is
machine-hours and the estimated amount of the allocation base for the
upcoming year is 48,000 machine-hours. In addition, capacity is 53,000
machine-hours and the actual activity for the year is 47,700 machine-
hours. All of the manufacturing overhead is fixed and is \$1,144,800 per
year. For simplicity, it is assumed that this is the estimated manufacturing
overhead for the year as well as the manufacturing overhead at capacity
and the actual amount of manufacturing overhead for the year. Job J42O,
which required 40 machine-hours, is one of the jobs worked on during the
.year
:Required
a. Determine the predetermined overhead rate if the predetermined
.overhead rate is based on the estimated amount of the allocation base
b. Determine how much overhead would be applied to Job J42O if the
predetermined overhead rate is based on estimated amount of the
.allocation base
c. Determine the underapplied or overapplied manufacturing overhead for
the year if the predetermined overhead rate is based on the estimated
.amount of the allocation base
d. Determine the predetermined overhead rate if the predetermined
.overhead rate is based on the amount of the allocation base at capacity
e. Determine how much overhead would be applied to Job J42O if the
predetermined overhead rate is based on the amount of the allocation
.base at capacity
f. Determine the underapplied or overapplied manufacturing overhead for
the year if the predetermined overhead rate is based on the amount of the
.allocation base at capacity
a. Predetermined overhead rate = Estimated total manufacturing
overhead Estimated total amount of the allocation base = \$1,144,800
48,000 MHs = \$23.85 per MH
b.

c.

## d. Predetermined overhead rate = Estimated total manufacturing

overhead at capacity Estimated total amount of the allocation base at
capacity = \$1,144,800 53,000 MHs = \$21.60 per MH
e.

f.
Ermoin Inc. uses the FIFO method in its process costing system. The .70
following data concern the operations of the company's first processing
.department for a recent month

:Required
Using the Weighted average
a. Determine the equivalent units of production for materials and
.conversion costs
b. Determine the cost per equivalent unit for materials and conversion
.costs
.c. Determine the cost of ending work in process inventory
d. Determine the cost of units transferred out of the department during
.the month

Murri Corporation has an activity-based costing system with three .131
activity cost pools-Processing, Setting Up, and Other. The company's
overhead costs, which consist of factory utilities and indirect labor, are
allocated to the cost pools in proportion to the activity cost pools'
consumption of resources. Costs in the Processing cost pool are assigned
to products based on machine-hours (MHs) and costs in the Setting Up
cost pool are assigned to products based on the number of batches. Costs
in the Other cost pool are not assigned to products. Data concerning the
two products and the company's costs and activity-based costing system
:appear below

:Required
a. Assign overhead costs to activity cost pools using activity-based
.costing
b. Calculate activity rates for each activity cost pool using activity-based
.costing
c. Determine the amount of overhead cost that would be assigned to each
.product using activity-based costing
d. Determine the product margins for each product using activity-based
.costing
a. Assign overhead costs to activity cost pools by applying the
percentages in the Distribution of Resource Consumption Across Activity
Cost Pools table to the respective costs. For example, the first entry in the
.table is computed as follows: 0.40 \$29,000= \$11,600

:b. The activity rates for each activity cost pool are computed as follows