1. Crich Corporation uses direct labor-hours in its predetermined overhead rate.
ID: 2549112 • Letter: 1
Question
1.
Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 22,160 hours and the total estimated manufacturing overhead was $585,024. At the end of the year, actual direct labor-hours for the year were 22,150 hours and the actual manufacturing overhead for the year was $585,024. Overhead at the end of the year was:
Multiple Choice
$314 overapplied
$314 underapplied
$264 underapplied
$264 overapplied
2.
The accounting records of Omar Corporation contained the following information for last year:
The amount of direct material purchased during the year was:
Multiple Choice
$66,000
$70,000
$65,000
$74,000
3. A reason why absorption costing income statements are sometimes difficult to interpret is that:
Multiple Choice
they omit variable expenses entirely in computing net operating income.
they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
they include all fixed manufacturing overhead on the income statement each year as a period cost.
they ignore inventory levels in determining cost of goods sold.
Beginning Ending Direct materials inventory $ 9,000 $ 7,000 Work in process inventory $ 17,000 $ 31,000 Finished goods inventory $ 10,000 $ 15,000Explanation / Answer
1) Predetermine overhead rate = 585024/22160 = 26.4 per labour hour
Under/over applied overhad= Applied overhead-actual overhead
= (22150*26.4)-585024
Under applied = 264
so answer is c) $264 under applied
2) Direct material purchase = Ending raw material+raw material used-beginning raw material
= 72000+7000-9000
Direct material purchase = 70000
so answer is b) $70000
3) A reason why absorption costing income statements are sometimes difficult to interpret is that
so answer is b) they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
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