Noreen E Brewer P Garrison R 2016 Managerial Accounting
Noreen E Brewer P Garrison R 2016managerial Accounting Fo
Noreen E. Brewer, P. Garrison, and R. Garrison's (2016) "Managerial Accounting for Managers" provides comprehensive guidance on managerial accounting principles, including cost behavior, cost allocation, budgeting, and performance evaluation. The assignment involves completing specific exercises from Chapter 4, focusing on calculating predetermined overhead rates, determining underapplied or overapplied overhead, applying overhead costs, and analyzing cost fluctuations across different scenarios.
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Paper For Above instruction
Managerial accounting plays a vital role in aiding managers to make informed decisions related to costing, budgeting, and financial planning. Chapter 4 delves into the intricacies of manufacturing overhead costs, their estimation, application, and analysis of variances, which are critical to accurate product costing and financial control. The exercises outlined in this chapter are designed to enhance understanding of these concepts through practical application.
Exercise 4-1: Computing the Predetermined Overhead Rate
The first exercise introduces a scenario involving Logan Products, which estimates its manufacturing overhead based on direct labor-hours. The key steps include calculating the predetermined overhead rate by dividing estimated total manufacturing overhead (fixed plus variable) by estimated direct labor-hours.
The fixed manufacturing overhead expenses are $466,000, and variable overhead is $3.00 per direct labor hour. With estimated direct labor-hours of 40,000, the calculation involves adding the fixed and variable components and dividing by the estimated labor hours to derive the rate:
\[
\text{Total estimated overhead} = 466,000 + (3.00 \times 40,000) = 466,000 + 120,000 = 586,000
\]
\[
\text{Predetermined overhead rate} = \frac{586,000}{40,000} = \$14.65 \text{ per direct labor-hour}
\]
This rate helps allocate overhead costs to products based on actual labor hours, ensuring consistent and plan-based cost management.
Exercise 4-4: Determining Underapplied or Overapplied Overhead
Kirkaid Company's transactions include raw materials requisition, labor costs, and overhead costs. The calculation involves comparing the applied overhead to actual overhead incurred. The applied overhead is given as $218,000. Actual overhead costs are the sum of indirect materials, indirect labor, and additional overhead incurred:
\[
\text{Total actual overhead} = 72,000 + 33,000 + 197,000 = 302,000
\]
The difference between applied and actual overhead reveals whether overhead was underapplied or overapplied:
\[
\text{Underapplied overhead} = 302,000 - 218,000 = 84,000
\]
The company overapplied overhead by $84,000, indicating that too much overhead was allocated relative to actual costs, which would typically reduce the cost of goods sold if closed out to COGS.
Exercise 4-7: Overhead Rate, Under/Overapplied Overhead, and Explanation
Medusa Products estimates machine-hours at 85,000 and overhead costs at $170,000, establishing a predetermined overhead rate of:
\[
\frac{170,000}{85,000} = \$2.00 \text{ per machine-hour}
\]
Actual machine-hours for the year were 80,000, with overhead costs of $168,000. The applied overhead based on actual machine-hours:
\[
\text{Applied overhead} = 80,000 \times 2.00 = 160,000
\]
Since actual overhead incurred was $168,000, the company underapplied overhead by:
\[
168,000 - 160,000 = 8,000
\]
The underapplied overhead occurs because the estimated rate underestimates actual costs. This discrepancy may be due to increased costs of machine maintenance, wages, or inefficiencies not captured in initial estimates.
Exercise 4-11: Underapplied/Overapplied Overhead and Effect on Gross Margin
Cretin Enterprises uses a predetermined rate of $21.40 per labor-hour based on an estimated $171,200 overhead for 8,000 hours. Actual overhead costs amounted to $172,500 over 8,250 hours. The applied overhead:
\[
8,250 \times 21.40 = 176,550
\]
The difference indicates overapplied overhead:
\[
176,550 - 172,500 = 4,050
\]
If this overapplied overhead is closed to COGS, it would decrease the cost of goods sold by $4,050, thereby increasing gross margin for the period. This adjustment aligns actual costs more closely with allocated costs, reflecting more accurate product costing.
Exercise 4-12: Overhead Application and Cost of Goods Manufactured
Black Company's year-end manufacturing overhead costs totaled $48,000, incurred across various factory expenses. Using a predetermined overhead rate of $5 per machine-hour and recorded machine-hours of 10,000, applied overhead was:
\[
10,000 \times 5 = 50,000
\]
The overapplied overhead is:
\[
50,000 - 48,000 = 2,000
\]
Calculating the cost of goods manufactured involves summing direct materials used, direct labor, and applied overhead, then adjusting for inventories:
\[
\text{Raw materials used} = (8,000 + 32,000 - 7,000) = 33,000
\]
\[
\text{Total manufacturing costs} = \text{Raw materials} + \text{Direct labor} + \text{Applied overhead} = 33,000 + 40,000 + 50,000 = 123,000
\]
The work-in-process inventory change is:
\[
\text{Beginning WIP} + \text{Manufacturing costs} - \text{Ending WIP} = 6,000 + 123,000 - 7,500 = 121,500
\]
Thus, the cost of goods manufactured totals $121,500, representing the total cost of goods completed during the period.
Exercise 4-13: Varying Overhead Rates and Cost Stability
Javadi Company estimates quarterly overhead costs with wide seasonal variation, utilizing variable rates based on units produced for each quarter. High-low method estimates the fixed and variable components. Using the maximum and minimum costs:
\[
\text{High cost} = 470,000 \text{ (Q2)}, \quad \text{Units} = 20,000
\]
\[
\text{Low cost} = 250,000 \text{ (Q4)}, \quad \text{Units} = 10,000
\]
Variable overhead per unit:
\[
\frac{470,000 - 250,000}{20,000 - 10,000} = \frac{220,000}{10,000} = \$22 \text{ per unit}
\]
Fixed overhead component:
\[
470,000 - (22 \times 20,000) = 470,000 - 440,000 = \$30,000
\]
Total estimated overhead for Q4:
\[
\text{Fixed} + \text{Variable} \times \text{units} = 30,000 + 22 \times 10,000 = 30,000 + 220,000 = 250,000
\]
Total costs and unit costs for Q4:
\[
\text{Total} = 250,000, \quad \text{Unit cost} = \frac{250,000}{10,000} = \$25
\]
The fluctuation in estimated costs is caused by seasonal demand variations affecting production volumes, leading to instability in per-unit costs. To stabilize costs, Javadi should consider using a single, complex predetermined rate based on an annual average or activity-based costing to smooth out seasonal effects.
Exercise 4-14: Applying Overhead to Jobs
Winston Company applies overhead based on direct labor costs. Job X has already incurred charges for materials and labor and has applied overhead of $15,000 based on this method. For Job Q, which is in process, direct materials and labor costs are known, but overhead has not yet been applied.
To determine whether any overhead should be added, the predetermined overhead rate used by Winston Company must be reviewed. If, for instance, the rate is 150% of direct labor cost, then overhead for Job Q, with $8,000 of direct labor, should be:
\[
\$8,000 \times 1.5 = \$12,000
\]
Therefore, an additional $12,000 should be applied to Job Q at year-end to accurately allocate overhead costs. This ensures consistent costing and accurate profit analysis.
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References
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