Assume the following information:
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 Ronson’s estimate of
440,000 hours. (Round all dollar figures to two decimal
places.)
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. 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 Ronson 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.