AF201 – MANAGERIAL ACCOUNTING

WEEK 3 – LESSONS

LESSON 1 – WEEK 3

1. Plantwide Rates

Nabors Company produces two types of stereo units: deluxe and regular. For the most recent
year, Nabors reports the following data:

Budgeted overhead $180,000

Expected activity (in direct labor hours) 50,000
Actual activity (in direct labor hours) 51,000
Actual overhead $200,000

Deluxe Regular
Units produced 5,000 50,000
Prime costs $40,000 $300,000
Direct labor hours 5,000 46,000

Required:

(1) Calculate a predetermined plantwide overhead rate based on direct labor hours.
(2) What is the applied overhead?
(3) What is the under – or – overapplied overhead?
(4) Calculate the unit cost of each stereo unit.

LESSON 2 – WEEK 3

2. Departmental Rates

Nabors Company gathers the following departmental data for the second year. Two types of
stereo units are produced:

Fabrication Assembly
Budgeted overhead $120,000 $60,000
Expected and actual usage (direct labor
hours):
Deluxe 3,000 2,000
Regular 3,000 43,000
TOTAL DIRECT LABOR HOURS 6,000 45,000

Fabrication Assembly
Expected and actual usage (machine hours):
Deluxe 2,000 5,000
Regular 18,000 5,000
TOTAL MACHINE HOURS 20,000 10,000

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 In addition to the departmental data, the following information is provided:

Deluxe Regular
Units produced 5,000 50,000
Prime costs (DM+DL) $40,000 $300,000

REQUIRED

(1) Calculate departmental overhead rates, using machine hours for fabrication and direct
labor hours for assembly.
(2) Calculate the applied overhead by department.
(3) Calculate the applied overhead by product.
(4) Calculate unit costs.

LESSON 3 – WEEK 3

Semester 1, 2015 Mid-semester Test

Use the following information to answer questions 10 and 11.

User of service
Support Departments Producing Departments
S1 S2 P1 P2
Budgeted overhead $450,000 $300,000 $750,000 $920,000
Provider of service
S1 - Number of employees 10 25 50 75
S2- Machine hours 60 - 140 200

Department S1’s cost is allocated based on the number of employees, and Department S2’s cost
is allocated based on machine hours.

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Question 10. If the direct method is used, Department S1’s cost assigned to Department P1
would be

A. $157,500
B. $185,294
C. $150,000
D. $180,000

Question 11. If the sequential or step-down method is used and Department S1’s cost is allocated
first, the Department S1 cost assigned to Department S2 would be

A. $67,500
B. $60,000
C. $75,000
D. $0