Exam 3: Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Welch Corporation uses a predetermined overhead application rate of $.30 per direct labor hour.During the year it incurred $345,000 dollars of actual overhead,but it planned to incur $360,000 of overhead.The company applied $363,000 of overhead during the year.How many direct labor hours did the company plan to incur?

Which of the following must be known about a production process in order to institute a variable costing system?

Vidal Corporation produces a single product.The following is a cost structure applied to its first year of operations.

Sales price	$15 per unit
Variable costs:
SG&A	$2 per unit
Production	$4 per unit
Fixed costs (total cost incurred for the year):
SG&A	$14,000
Production	$20,000

During the first year,Vidal Corporation manufactured 5,000 units and sold 3,800.There was no beginning or ending work-in-process inventory. a. How much income before income taxeswould be reported if Vidal Corpor ation uses absorption costing b. How much income before income taxeswould be reported if variable conting was used? c. Show why the two costing methods give different income amounts.

A debit to the Factory Overhead account represents actual overhead costs.

Owens Athletics,Inc.has developed a new design to produce hurdles that are used in track and field competition.The company's hurdle design is innovative in that the hurdle yields when hit by a runner and its height is extraordinarily easy to adjust.Management estimates expected annual capacity to be 90,000 units;overhead is applied using expected annual capacity.The company's cost accountant predicts the following current year activities and related costs:

Standard unit variable manufacturing costs	$12
Variable unit selling expense	$5
Fixed manufacturing overhead	$495,000
Fixed selling and administrative expenses	$136,000
Selling price per unit	$35
Units of sales	80,000
Units of production	85,000
Units in beginning inventory	10,000

Other than any possible under- or overapplied fixed overhead, management expects no variances from the previous manufacturing costs. Under- or overapplied fixed overhead is to be written off to Cost of Goods Sold. Required: 1. Determine the amount of under- or overapplied fixed overhead using (a) variable costing and (b) absorption costing. 2. Prepare projected income statements using (a) variable costing and (b) absorption costing. 3. Reconcile the incomes derived in part 2.

Ellis Corporation The following information was extracted from the first year absorption-based accounting records of Ellis Corporation

Total fixed costs incurred	$100,000
Total variable costs incurred	50,000
Total period costs incurred	70,000
Total variable period costs incurred	30,000
Units produced	20,000
Units sold	12,000
Unit sales price	$12

Refer to Ellis Corporation.If Ellis Corporation had used variable costing in its first year of operations,how much income (loss)before income taxes would it have reported?

In a normal cost system,factory overhead is assigned directly to products and services.

Thompson Enterprises owns two luxury automobiles that are used by employees on company business.Mileage and expenses,excluding depreciation,by quarters for the most recent year are presented below:

Quarter	Mileage	Expenses
First	3,000	$ 550
Second	3,500	560
Third	2,000	600
Fourth	3,500	$2,160

                12,000Required:Determine the variable cost per mile (nearest tenth of a cent)and the fixed costs per quarter,using the method of least squares.

Normal capacity considers present and future production levels and cyclical fluctuations.

Lawson Corporation Lawson Corporation has the following data for use of its machinery

Month	Usage	Cost
Jun	600	$750
Jul	650	775
Aug	420	550
Sept	500	650
Oct	450	570

Refer to Lawson Corporation.Using the high-low method,compute the variable cost element.

An actual cost system differs from a normal cost system in that an actual cost system

A performance measure that encompasses a firm's long-run average activity is referred to as ____________________ capacity.

The costing system that classifies costs by functional group only is

Hahn Corporation Hahn Corporation produces a single product that sells for $7.00 per unit.Standard capacity is 100,000 units per year;100,000 units were produced and 80,000 units were sold during the year.Manufacturing costs and selling and administrative expenses are presented below. There were no variances from the standard variable costs.Any under- or overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold.

	Fixed costs	Variable costs
Direct material	$0	$1.50 per unit produced
Direct labor	0	1.00 per unit produced
Manufacturing overhead	$150,000	0.50 per unit produced
Selling & Administration expense	80,000	0.50 per unit sold

Hahn Corporation had no inventory at the beginning of the year. Refer to Hahn Corporation.In presenting inventory on the balance sheet at December 31,the unit cost under absorption costing is

If a firm uses variable costing,fixed manufacturing overhead will be included

A ______________________________ is a planning document that presents expected variable and fixed overhead costs at different activity levels.

The estimated maximum potential activity for a specified time is:

What are the primary reasons for using a predetermined overhead rate?

When a relationship between several independent variables and one dependent variable is analyzed,the regression is referred to as ____________________.

For financial reporting to the IRS and other external users,manufacturing overhead costs are