Toyz Manufacturing uses departmental cost driver rates to apply ...

[jerry coleman]

Toyz Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the
 
  Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 2014, the following estimates were provided for the coming year:
 
   Machining Assembly
   Direct labor-hours (dlh) 10,000 dlh 150,000 dlh
   Machine-hours (mh) 100,000 mh 5,000 mh
   Direct labor cost  80,000 720,000
   Manufacturing overhead costs 200,000 450,000
 
  The accounting records of the company show the following data for Job 897:
 
   Machining Assembly
   Direct labor-hours (dlh) 50 dlh 120 dlh
   Machine-hours (mh) 170 mh 10 mh
   Direct material cost 3,000 1,600
   Direct labor cost 400 1,500
 
  Required:
  a. Compute the manufacturing overhead allocation rate for each department.
  b. Compute the total cost of Job 897.
  c. Provide possible reasons why Toyz Manufacturing uses two different cost allocation rates.

Question 2

On July 1 of the current year, the assets and liabilities of John Wong, DVM, are as follows: Cash, 27,000;Accounts Receivable, 12,300; Supplies, 3,100; Land, 35,000; Accounts Payable, 13,900 . What is the amount ofowner's equity (John Wong's capital) as of July 1 of the current year?

[ryhom]

Answer to Question 1

Answer:
a. Machining Department cost-allocation rate: 2.00 / mh = 200,000/100,000 mh
Assembly Department cost-allocation rate: 3.00 / dlh = 450,000/150,000 dlh

b. Total cost of Job 897 is 7,200 = Direct materials, 4,600 + Direct labor, 1,900 + Manufacturing overhead costs, 700 (Machining, 340 + Assembly, 360).

c. Ideally, the cost-allocation base should reflect the factors that cause manufacturing overhead costs to increase. Apparently, Toyz regards the use of machines as the principal cause of manufacturing overhead costs (such as depreciation and repairs) in the Machining Department. In contrast, Toyz regards direct labor-hours as the principal cause of manufacturing overhead costs (such as indirect labor) in the Assembly Department.

Answer to Question 2

63,500
(27,000 Cash + 12,300 Accounts Receivable + 3,100 Supplies + 35,000
Land) 13,900 Accounts Payable = 63,500