Question

Canada Quarries processes large pieces of granite into finely finished countertop material. Production occurs in two phases - sawing and polishing. The sawing phase is almost entirely automated and costs are largely driven by processing time on a computerized sawing machine. Polishing is a labor intensive process, and the amount of time on a particular job varies considerably based on the intrinsic stone quality and the desired sheen for a particular job. The Sawing Department applies factory overhead based on sawing machine hours. The Polishing Department applies factory overhead based on direct labor hours.The following table reveals estimates for the upcoming year. These estimates were used to determine the applicable factory overhead application rates:Sawing PolishingDirect labor $125,000 $800,000Direct materials $75,000 $6,000Factory overhead $275,000 $180,000Direct labor hours 10,000 60,000Sawing machine hours 50,000 n/aDuring the year, the company received and processed a granite order for a countertop to be used in the Washington County courthouse.The following table reveals information extracted from the materials requisition forms and daily time sheets relating to this particular job:Sawing PolishingDirect labor $300 $1,770Direct materials $185 $20Direct labor hours 24 130Sawing hours 126 n/aLooking back at the end of the year, the company determined that actual data were as follows:Sawing PolishingDirect labor $121,000 $802,000Direct materials $73,400 $8,000Factory overhead $129,000 $188,000Direct labor hours 9,600 60,500Sawing machine hours 44,500 n/aDetermine the factory overhead application rates for each department.

Answer 1

Answer:

Sawing:      $5.50

Polishing:   $3.00

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

We have to solve usign the expected values as the predetermined rate is calcualted before the activities are done.

Sawing:

expected overhead 275,000

cost driver: machine hours

expected MH 50,000

overhead rate: 275,000 / 50,000 = 5.5

Polishing:

expected overhead 180,000

cost dirver labor hours

expected DL 60,000

overhead rate: 180,000 / 60,000 = 3.0

Answer 2

Answer:

Bid Price of the Project = $35 Per Square Meter.

Actual dimensions is  4 by 25 Square meter

Actual Revenue therefore  = 4 x 25 x 35 = $3,500

Actual Costs = Sawing ($7.29 x 126 hrs) + Polishing ($16.50 x 130 hrs) = ($918.54 +  $2,145) = $3,063.54

Profit = $3,500 minus $3,063.54 = $436.46

Yes, the company made a profit of $436.46

Explanation:

Compute the cost to be assigned to the Washington County job. The job had been bid to the customer at a sales price of $35 per square foot, and the final dimensions are 4' X 25'. Did the company make a profit on this job?

Sawing & Polishing department Actual Costs For the year:

Direct Labor $121,000 || $802,00

Direct Materials - $73,400 || $8,000

Factory Overhead - $129,000 || $188,000

Total Direct Costs = $323,400 || $998,000

Direct Labor Hours - 9,600 Hrs || 60,500 Hrs

Sawing machine hours - 44,500 Hrs ||  n/a

Actual Factory Overhead allocation =

$323,400 divided by 44,400 hrs = $7.29 Per Sawing Machine hour (Sawing Department)

$998,000 divided by 60,500 hrs = $16.50 Per direct Labour Hour (Polishing Department)

Sawing & Polishing department Budgeted Costs For the year:

Direct Labor $125,000 || $800,000

Direct Materials - $75,000 || $6,000

Factory Overhead - $275,000 || $180,000

Total Direct Costs = $475,000 || $986,000

Direct Labor Hours - 10,000 Hrs || 60,000 Hrs

Sawing machine hours - 50,000 Hrs || n/a

Budgeted Factory Overhead allocation =

$475,000 divided by 50,000 hrs = $9.50 Per Sawing Machine hour (Sawing Department)

$986,000 divided by 60,000 hrs = $16.43 Per Direct Labour hour (Polishing Department)

Sawing & Polishing department Washington County Courthouse project Costs:

Direct Labor $300 || $1,770

Direct Materials - $185 || $20

Factory Overhead - $0 || $0

Total Direct Costs = $485 || $1,790

Direct Labor Hours - 24 Hrs || 130 Hrs

Sawing machine hours - 126 Hrs || n/a

Factory Overhead allocation for Washington County Courthouse Project =

$485 divided by 126 hrs = $3.85 Per Sawing Machine hour (Sawing department)

$1,790 divided by 130 hrs = $13.77 Per Direct Labour hour (Polishing department)

Bid Price of the Project = $35 Per Square Meter.

Actual dimensions is  4 by 25 Square meter

Actual Revenue therefore  = 4 x 25 x 35 = $3,500

Actual Costs = Sawing ($7.29 x 126 hrs) + Polishing ($16.50 x 130 hrs) = ($918.54 +  $2,145) = $3,063.54