- Plant wide overhead rate using direct labour hours:
Overhead Rate (formula) =
= $_______ per direct labor hour
Total manufacturing cost per unit for Job 110:
_________________________ $_______________
_________________________ ________________
_________________________ ________________
_________________________
________________
Total Cost $_________________
Total cost/unit = ________________ = $__________ per unit
- Plant wide Overhead Rate:
Using Machine Hrs (formula) =
= $_______ per machine hour
Overhead Rate:
Department A (formula) =
= $_______ per machine hour
Department B (formula) =
= $_______ per machine hour
Total manufacturing cost per unit for Job 110:
_________________________ $_______________
_________________________ ________________
_________________________ ________________
_________________________ ________________
_________________________ ________________
_________________________
________________
Total Cost $_________________
Total cost/unit = ________________ = $__________ per unit
COMPREHENSIVE PROBLEM 5 THE GILSTER COMPANY
(continued)
- Bid price for Job 110 (plant wide rate):
Bid price for Job 110 (separate overhead rates):
The bids differ due to the differences in manufacturing overhead that are applied to the job using the two allocation methods. The overhead differences are due to
(1)_________________________________________________________________________and
(2)_________________________________________________________________________
The allocation scheme employed in part b. would be recommended because the departmental overhead is due mostly to machine related expenses and the use of multiple overhead rates allows for allocation that more closely resembles the use of resources.
- Applied overhead based on machine hours:
Plant wide (__________________________________) ________________
Department A ($______ x _________ machine hrs.) ________________
Department B ($______ x _________ machine hrs.) ________________
Total overhead applied $_________________
Under or over applied overhead:
Actual overhead was $_____________ ($_____________ + ____________ + _____________), so the amount over or under applied was $_____________ (_____________ _____________).
Effect of overhead proration vs. assignment to cost of goods sold:
Correcting the application by reducing cost of goods sold would increase net income for the current year by more than would have resulted if the correction was prorated between cost of goods sold and inventories.
COMPREHENSIVE PROBLEM 5
THE GILSTER COMPANY (concluded)
- Incremental analysis:
The cost per unit calculated in part b ($______/unit) is more or less than the contractors price of $8 per unit. Assuming the capacity would be otherwise idle and not produce any other revenue, Glister would be better off _____________________________________________________________________________________________________________________________________________.
- The incremental cost of buying the parts from the subcontractor would be:
$___________ ($______ x ___________units) which is more or less than the incremental profit earned by producing the other job.
Thus, total profits would increase or decrease by $___________ ($_________ $_________) if the subcontractor is used to produce the parts for Job 110 and Glister uses its _______________ _______________to produce the other job.
g. and h. are not required – the suggested solutions are completed below for your information.
- Environmental considerations for Mexico:
As discussed in Chapter 15, legal/political, economic, cultural, and technological environmental categories affect international operations. In the economic category an important issue is exchange rate transaction risk, which would in part be determined by whether the contracts are denominated in U.S. dollars or Mexican pesos. In the legal/political category issues include NAFTA regulations and the general risk undertaken by doing business in a politically less stable environment. The impact of import duties and possibly higher shipping costs on profits should be considered. Finally, the skill level of the labor force in terms of producing a high quality product would also be a consideration.
- Changes needed to use target costing:
To successfully implement target costing, Gilster would need to adopt a more customer oriented approach. The marketing department would need to determine what prices customers would be willing to pay for Gilster’s products. Including the entire value chain in the target costing process is required. In addition, target returns would need to be determined so that target costs could be calculated.
Attachments:
Comprhensive ….docx