Devry ACCT 505 Week 2 Case Study
The General Manager said he had an agreement with Terri’s predecessor to shave 5% or so off the estimated direct labor-hours per year.
“That way, we kept a reserve that usually resulted in a big boost to net operating income at the end of the fiscal year In December (They called it their Christmas bonus).”
|Direct Materials||40||per unit
|Direct Labor||20||per unit
|Total Estimated Manufacturing Overhead||8,400,000|
Manufacturing overhead is allocated based on estimated direct-labor hours
Each unit of product requires 1 direct labor hour
1) Calculate the cost of one unit of product, assuming that the overhead per unit is based on Terri Ronsin’s estimate of 440,000 hours
a) If 442,000 units were produced, how much overhead was applied to work in process?
2. Calculate the cost of one unit of product, assuming that the overhead per unit is based on her supervisors preferred estimate of 420,000 hours. (Round all dollar figures to two decimal places.)
a)a. If 442,000 units were produced, how much overhead was applied to work in process?
3. During the year, the company produced and sold 442,000 units, and incurred actual overhead of $8,450,000, what is the under/overapplied overhead if:
a) The estimated Direct Labor Hours is 440,000
b) The estimated Direct Labor Hours is 420,000
c) All over-applied and under-applied overhead applied directly to cost of goods sold
Assume that the company had $900,000 in net operating income before the over/under applied overhead adjustment is made.
What is the revised net income after the over/underapplied overhead adjustment?
4) Should Terri Ronsin go along with the general manager’s request to reduce the direct labor hours in the predetermined overhead rate computation to 420,000 hours?
Be sure to discuss the operational and ethical issues related to this decision (5-7 minute NARRATED POWERPOINT)