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Dominik [7]
3 years ago
7

Smithson, Inc. produces two types of gas grills: a family model and a deluxe model. Smithson’s controller has decided to use a p

lant-wide overhead rate based on direct labor costs. The president of the company recently heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations:
Family Model Deluxe Model
Direct labor costs $75,000 $150,000
Machine hours 2,000 2,000
Setup hours 200 800
Total estimated overhead costs are $450,000. Overhead cost allocated to the machining activity cost pool is $270,000 and $180,000 is allocated to the machine setup activity cost pool.
a. Compute the overhead rate using the traditional (plantwide) approach.
b. Compute the overhead rates using the activity-based costing approach.
c. Determine the difference in allocation between the two approaches.
Business
1 answer:
Fynjy0 [20]3 years ago
3 0

Answer:

A.) Overhead rate = 200% of direct labor cost.

B.) $67.5 per machine hour ; $180 per setup

C.) The traditional costing applies overhead burden rate equally to all products which might sometimes give a vague picture of production cost especially that which is applied to each different product.

With the activity based costing method we could see that machining activity setup rate about 26 times the machining activity rate.

Explanation:

Overhead rate using the plantwide approach

Overhead rate = (estimated overhead cost ÷ direct labor cost)

Overhead rate = ($450,000) ÷ (75,000 +150,000)

Overhead rate = $450,000 ÷ $225,000

Overhead rate = 200% of direct labor cost.

B.) Using activity costing

machining activity cost pool = $270,000

machine setup activity cost pool = $180,000

Total Machining activity hours = (2000 + 2000) = 4000

Total machine setup activity hours = (200 + 800) = 1000

Machining activity rate = (cost /hours) :

$270,000/4000 = $67.5 per machine hour

Machining activity setup rate = (cost /hours) :

$180,000/ 1000 = $180 per setup

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Answer:

                                       Income Statement

Revenue                                                                 $24,698

Expenses

Salaries and employee benefits      $8,815

Purchased Transportation                $1,203

Fuel Expense                                     $3,228

Rental and landing fees                     $1,748

Depreciation Expense                       $925

Maintenance and repairs expense   $1,573

Provision for income taxes                $805

Other expense (revenue) net            <u>$4,995</u>

Total Expenses                                                        <u>$23,292</u>

Net Income                                                               <u>$1,406</u>

5 0
2 years ago
Griffin's goat farm, inc., has sales of $680,000, costs of $342,000, depreciation expense of $86,000, interest expense of $53,00
Oksana_A [137]

Addition to Retained Earnings will be the amount will be Net Income as calculated using the above information:

Net income will be calculated as below:

Sales...........................................................$680000

Less: Cost of Sales.................................$342000

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Less: Interest Expense.........................$53000

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Less [email protected] 23%.........................................$45770

Net Income..............................................$153230

Thus Income of $153230 will be added to Retained earnings and Cash dividend of $40000 will be reduced from therein.

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Cork inc. declared a $160,000 cash dividend. it currently has 6,000 shares of 6%, $100 par value cumulative preferred stock outs
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3 0
3 years ago
Suppose the current price of a good is $130. At this price, the quantity supplied is 125 units, and the quantity demanded is 165
Natali5045456 [20]

Answer:

Equilibrium quantity: 145

Equilibrium price: $140

Explanation:

In order to find the answer, first we determine the current difference between quantity supplied and quantity demanded.

Quantity supplied - quantity demanded = difference

125 - 165 = -40

So we have a shortage of -40 units.

We have the information that a $1 increase in price increases supply by 2, and decreases demand by 2. Thus, in order to close the shortage, we need a $10 price increase, because this will raise supply by 20 units, and lower demand by 20 units as well, bringing the 40 gap to 0.

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5 0
2 years ago
Define liquidity. Rank the following assets in terms of liquidity, from most to least liquid: money market mutual fund, savings
valina [46]

Answer:

Liquidity: amount of cash or cash equivalents and its primary feature of converting quickly into money without losing any of it current value.

1)_ Dollar bill

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3)_ Checking account

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6)_ Money market mutual fund

7)_ House

Explanation:

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3 0
2 years ago
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