Quiz 3 An electrical component manufacturer has selected direct labour hours as
ID: 2584934 • Letter: Q
Question
Quiz 3
An electrical component manufacturer has selected direct labour hours as an application base. They plan to sell 35,000 units of copper tubing although the factory has the capacity to produce 40,000 units under normal circumstances.
Overheads are estimated as follows:
Indirect materials and supplies --------------------------- $96,200
Repairs and maintenance -------------------------- $24,100
Plant service contracts ---------------------------$37,000
Refurbishing cost -------------------------- $89,100
Machinery depreciation ------------------------ $185,000
Factory insurance ------------------------- $18,200
Property taxes ---------------------------$4,500
Heat, light and power --------------------------$51,700
Miscellaneous factory overhead -------------------------- $6,000
indirect Labour -------------------------------$120,000
Materials --------------------------------$80,000
Transportation ---------------------------------$25,000
Rent ---------------------------------$40,000
Security Cost ---------------------------------$15,000
All overhead costs except depreciation, property taxes and miscellaneous factory overhead are expected to increase by 10% during the year. Depreciation should increase by 12% and a 20% increase in property taxes and miscellaneous overhead is expected. A total of 55,600 direct labour hours was actually used to produce 35,000 units of copper tubing . Direct labour hours is expected to increase to 60,000 hours as production volume increases.
a. Determine the Total estimated overheads? (5Marks )
b. Calculate the predetermined overhead rate (6 Marks)
c. Calculate the overhead application rate if 60,000 Direct Labour hours was used in production . Ascertain the overhead applied to the job if it took 120 direct labor hours. (4 Marks)
Explanation / Answer
ESTIMATED OVERHEADS Expected increased actual overhead Indirect materials and supplies $96,200 $105,820 (10% increase) Repairs and maintenance $24,100 $26,510 (10% increase) Plant service contracts $37,000 $40,700 (10% increase) Refurbishing cost $89,100 $98,010 (10% increase) v Machinery depreciation $185,000 $207,200 (12% increase) Factory insurance $18,200 $20,020 (10% increase) v Property taxes $4,500 $5,400 (20% increase) Heat, light and power $51,700 $56,870 (10% increase) v Miscellaneous factory overhead $6,000 $7,200 (20% increase) indirect Labour $120,000 $132,000 (10% increase) Materials $80,000 $88,000 (10% increase) Transportation $25,000 $27,500 (10% increase) Rent $40,000 $44,000 (10% increase) Security Cost $15,000 $16,500 (10% increase) a. TOTAL ESTIMATED OVERHEAD $791,800 $875,730 Direct labor hours 55,600 b Predetermined overhead rate $ 14.24 (791800/55600) c. Total overhead $875,730 Total actual hours 60000 Overhead application rate $14.60 (875730/60000) d Number of hours taken by the job 120 Overhead applied(14.60*120) $1,751
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