CASE 1: CASES FOR MANAGEMENT DECISION MAKING
Define and explain the meaning of a predetermined manufacturing overhead rate that is applied in a job-order costing system.
This is the estimate of how much overhead will be needed based on estimate of production.
What are the advantages and disadvantages of using the cost of each print as a manufacturing overhead cost driver?
Costs will be more accurate, costs are tailored more too specific products.
Relies too heavily on prediction of how many of each particular product will be sold.
Using the information on the next page, compute and interpret the predetermined manufacturing overhead rate for Wall Décor.
Total cost = number of prints x cost per print
80,000 x $12 = $960,000 Steel Framed Print, No Matting
15,000 x $16 = $240,000
Wood Framed Print, with Matting
7,000 x $20 = $140,000
Total Cost of Prints = $960,000 + $240,000 + $140,000 = $1,340,000
Predetermined Manufacturing Overhead Rate = (Manufacturing overhead/total cost of prints) x 100% = (375,200/1,340,000) x 100% = 28%
Compute the product cost for the following three items.
Lance Armstrong unframed print (base of print $12)
John Elway print in steel frame, no mat (base cost of print $16) c)
Lambeau Field print in wood frame with mat (base cost of print $20)
Direct Materials = print + frame & glass + matting
Direct Labor = picking labor + framing & matting labor
Manufacturing Overhead = direct materials x predetermined rate Cost of Prints = direct materials + direct labor + manufacturing overhead
Picking labor = (rate/hour) x minutes worker = (rate/ 60min) x minutes worked = ($12/60) x 10 = $2/unit For Steel Framed, Matting & Framing Time = (rate/ 60min) x minutes worked = ($21/60) x 20 = $7/unit For Wood Framed, Matting & Framing Time = (rate/...
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