Comprehensive Problem 6 (Algo)
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Utease Corporation has several production plants nationwide. A newly opened plant in Dubuque produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows.
Manufacturing costs (per unit based on expected activity of 15,000 units or 19,500 direct labor hours):
Direct materials (2.0 pounds at $20) $ 40.00 Direct labor (1.3 hours at $50) 65.00 Variable overhead (1.3 hours at $30) 39.00 Fixed overhead (1.3 hours at $40) 52.00 Standard cost per unit $ 196.00 Budgeted selling and administrative costs: Variable $ 5 per unit
Fixed $ 1,000,000 Expected sales activity: 11,000 units at $350 per unit
Desired ending inventories: 10% of sales
Assume this is the first year of operations for the Dubuque plant. During the year, the company had the following activity.
Units produced 14,000 Units sold 12,500 Unit selling price $ 345 Direct labor hours worked 17,700 Direct labor costs $ 902,700 Direct materials purchased 32,000 pounds
Direct materials costs $ 640,000 Direct materials used 32,000 pounds
Actual fixed overhead $ 280,000 Actual variable overhead $ 485,000 Actual selling and administrative costs $ 1,455,000 In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.
Comprehensive Problem 6 (Algo) Part e
e-1. Find the total over- or underapplied (both fixed and variable) overhead.
e-2. Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead?