Compute The Firm’s Predetermined Overhead Rate For

Compute The Firms Predetermined Overhead Rate For

Chapter 33 353 35 Compute The Firms Predetermined Overhead Rate For Chapter . Compute the firms predetermined overhead rate for the year using each of the following common cost drivers (a) machine hours (b) direct-labor hours (c) direct-labor dollars 2. Calculate the overapplied or underapplied overhead for the year using each of the cost drivers listed above. . Suppose you are the controller for a company that produces handmade glassware 1. Choose a volume-based cost driver upon which to base the application of overhead. Write a memo to the company president explaining your choice 2. Now you have changed jobs. You are the controller of a microchip manufacture that uses a highly automated production process. Repeat the same requirements above . Complete the T- accounts by computing the amounts indicated by a question mark Chapter 4 Case 4-39 In order to provide cost data regarding the manufacture of leather belts in the Dallas Plant to the top management of Laredo Leather company, compute the following amounts for the month of October. 1. The equivalent units for material and conversion 2. The cost per equivalent unit of material and conversion 3. The assignment of production costs to the October 31 work-in-process inventory and to goods transferred out 4. The weighted-average unit cost of leather belts completed and transferred to finished goods. Comment on the company’s cost per belt used for planning and control 5. (a) By how much would Murray’s suggested manipulation lower the unit conversion cost? (b) What should Daley do (c) Discuss this situation citing specific ethical standards for managerial accounting.

Paper For Above instruction

Cost accounting plays a crucial role in both manufacturing and service industries by providing accurate cost information necessary for planning, control, and decision-making. This paper explores how to compute predetermined overhead rates using different cost drivers, analyze overapplied or underapplied overhead, and examine ethical considerations in managerial accounting through illustrative scenarios involving companies producing handmade glassware, microchips, and leather belts.

First, understanding the calculation of predetermined overhead rates is vital. The predetermined overhead rate (POHR) is established at the beginning of the accounting period by dividing estimated manufacturing overhead costs by an estimated activity base, such as machine hours, direct-labor hours, or direct-labor dollars. For a company producing handmade glassware, selecting the appropriate cost driver depends on the nature of the production process. Given that handmade glassware involves significant manual labor and variable processes, direct-labor hours may be the most appropriate volume-based driver because it closely correlates with overhead consumption. A memo to the company president would emphasize that using direct-labor hours ensures a more accurate allocation of overhead costs aligned with actual resource usage, ultimately aiding in cost control and pricing strategies.

For a highly automated microchip manufacturing process, the choice of cost driver shifts. In this context, machine hours would be the preferred cost driver because most overhead costs are related to equipment operation, automation, and machinery maintenance. A memo to the plant manager would reiterate that machine hours better reflect the direct relationship between machinery activity and overhead incurred, leading to more precise product costing.

Calculating the predetermined overhead rate involves dividing total estimated overhead costs by the total estimated activity level for each driver. For instance, if estimated overhead costs are $500,000 and estimated machine hours are 10,000, the POHR based on machine hours would be $50 per machine hour. Similarly, rates based on direct-labor hours or dollars would be calculated accordingly. These rates are then applied to actual activity during the period, which may result in overapplied or underapplied overhead—where actual overhead incurred differs from the allocated amount. The calculation of over- or underapplied overhead involves comparing total applied overhead to actual overhead costs. Significant deviations impact cost accuracy and must be adjusted at period end to reflect true costs, influencing profit measurement and inventory valuation.

Transitioning to the case of Laredo Leather, detailed cost analysis for October involves calculating equivalent units, which normalize partially completed units into fully complete units for cost assignment. Material costs typically flow through the process proportionally to units, while conversion costs (labor and overhead) are incurred over time and need specific calculation methodologies such as weighted-average or FIFO approaches. These calculations facilitate deriving the cost per equivalent unit for materials and conversion, critical for assigning costs to units in inventory and units completed during the period. Proper cost assignment ensures accurate valuation of work-in-process inventory and finished goods, informing strategic decisions regarding product pricing, cost control, and profitability analysis.

Further, analyzing the company's cost per belt reveals whether the business operates with efficient cost management. If manipulation of figures, suggested by Murray, aims to lower unit conversion costs—potentially through unethical means such as misreporting hours or costs—cost management becomes compromised. Ethical standards, such as integrity, objectivity, and professional behavior outlined by the American Institute of CPAs (AICPA), emphasize transparency and honesty in reporting costs. Managers should avoid manipulative practices that distort financial data, as these violate ethical principles and can lead to legal repercussions, loss of stakeholder trust, and long-term harm to the organization.

In conclusion, accurate calculation of overhead rates and cost analysis supports managerial decision-making and enhances operational efficiency. Ethical conduct in accounting reinforces credibility and ensures compliance with professional standards. Whether dealing with handmade crafts or high-tech manufacturing, practitioners must apply sound methodologies and uphold ethical principles to foster sustainable business practices.

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