What actual amount of manufacturing overhead cost incurred
Course:- Accounting Basics
Reference No.:- EM131900364

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Question 1 - Armidale Electronics manufactures surround sound systems and applies manufacturing costs to production at a budgeted indirect­cost rate of $22 per direct­labor hour. The following data are obtained from the accounting records for August 2012:

Direct materials $350,000

Direct labor (7,000 hours @ $15/hour) $105,000

Indirect labor $15,000

Plant lease $75,000

Depreciation on plant and equipment $40,000

Marketing expense $20,000

Plant utilities $15,000


a. What actual amount of manufacturing overhead cost was incurred during August 2012?

b. What amount of manufacturing overhead was allocated to all jobs during August 2012?

c. For August 2012, was manufacturing overhead under­allocated or over­allocated? Explain.

d. What are the implications for the company, based on your outcome for 'c'?

Question 2 - Armidale Enterprises reports the year­end information from 2012 as follows:

Sales (100,000 units) $ 250,000

Less: Cost of goods sold 150,000

Gross profit 100,000

Operating expenses (includes $10,000 of Depreciation) 60,000

Net income 40,000

Michelle, the firm's owner, is developing the 2013 budget. In 2013 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.

Required: Prepare a budgeted income statement for 2013.

Question 3 - Southern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Armidale Motors for $1,250 each. Southern's plant can manufacture the motors for the following costs per unit:

Direct materials $ 500

Direct manufacturing labor 250

Variable manufacturing overhead 200

Fixed manufacturing overhead 350

Total $1,300

If Southern buys the motors from Armidale Motors, 70% of the fixed manufacturing overhead applied will not be avoided.


a. Should Southern Company make or buy the motors? Show your calculations

b. What additional (qualitative) factors should Southern consider in deciding whether or not to make or buy the motors?

Question 4 - Bill and Roseland are college friends planning a skiing trip before the New Year. They estimated the following costs for the trip:


Estimated Cost

Cost Driver

Activity Allocation





Pounds of food eaten





# of lift tickets





# of nights









1. Bill suggests that the costs be shared equally. Calculate the amount each person would pay.

2. Roseland does not like the idea because he plans to stay in the room rather than ski. Roseland suggests that each type of cost be allocated to each person based on the above listed cost driver. Using the activity allocation for each person, calculate the amount that each person would pay based on his own consumption of the activity.

3. How does ABC system works in assigning indirect costs to cost objects?

Question 5 - Duffy Corporation has prepared the following sales budget for 2012:

Month Cash Sales Credit Sales

May $16,000 $68,000

June 20,000 80,000

July 18,000 74,000

August 24,000 92,000

September 22,000 76,000

Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible.

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