Question

1. Soul Socket Inc. manufactures socket wrenches.

Answer 1

Answer:

a. $3.40 per wrench

b. $3.78 per wrench

c. $4 per wrench

d. $3.82 per wrench

Explanation:

a) Theoretical Fixed Manufacturing Overhead.

This is the cost associated with what the company can produce.

They can produce as much as 5,000 wrenches per day for 22 days on a budget of $374,000.

Theoretical Manufacturing Overhead is therefore,

= 374,000 / ( 5,000 * 22)

= $3.40 per wrench.

b. The Practical Fixed Overhead would be the costs to be incurred with the more likely level of production.

Company will more likely produce 4,500 wrenches a day.

Following from a,

= 374,000 / (4,500 * 22)

= 3.7778

= $3.78 per wrench.

c. The normal overhead is the cost associated when the company produces according to demand.

The demand is expected to be 4,250 wrenches for the next 3 years.

Therefore,

= 374,000 ( 4,250 * 22)

= $4 per wrench.

d. The master budget overhead rate is cost associated with the level the company Plans to produce.

Soul Socket plans to produce 4,450 wrenches a day.

Therefore,

= 374,000 (4,450 * 22)

= $3.82 per wrench.