4-4
1. Calculate the activity consumption ratios for each product.
X12 Machining = 50,000/350,000 = 0.14
YK7 machining = 300,000/350,000 = 0.86
X12 Setups = 40/120 =0.33
YK7 Setups = 80/120 = 0.66
X12 Inspecting products = 1000/10,000 = 0.1
YK7 Inspecting products = 9000/10,000 = 0.9
X12 Purchasing = 500/4000 = 0.13
YK7 Purchasing =3500/4000 = 0.86
2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When
compared with the activity ratios, what can you say about the relative accuracy of a
plantwide rate? Which product is undercosted?
X12 Plantweide rate 30,000/100,000 = 0.3
YK7 plantwide rate 70,000/100,000 = 0.7
Generally, a plantwide rate is less accurate in allocating overhead costs due to its broad
and averaged approach. Activity is more precise and detailed in terms of the actual cost
associated with that special activity
YK7 is undercosted
3. What if the machine hours were used for the plantwide rate? Would this remove
the cost distortion of a plantwide rate? This would remove the cost distortion because
just the x12 activity has a consumption ratio that is close to 0.14, if they were equal the
cost assignment would be more accurate.
4-13
1. Compute a predetermined overhead rate for Craig.
Predetermined OHR = estimated OVH/estimated MH = 5700000/375000=15.2 per MH
Compute the overhead variance, and label it as under or overapplied.
382,500 MH * 15.20 rate = 5,814,000
Overapplied 84000
Debit
overhead
Credit
84000
COGS
84000
Assuming the overhead variance is material, prepare the journal entry that appropriately
disposes of the overhead variance at the end of the year.
debit
Overhead control
credit
84000
Work in process
inventory
16128
Finished goods
inventory
17472
50400
Item
ratio
amount
Work in process
inventory
576000
16128
Finished good
investorsy
624000
17472
Cost of goods sold
1800000
50400
total
3000000
84000