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Q32

Recently Ryan Smith, the plant manager of the manufacturing division of Waterways Corporation, has been focusing on changes to overhead costs. He realizes that Ben Clark's new designs call for more automation in the plant, but he is also investigating if there are any opportunities for cost savings. Ryan thought it might be helpful to his cost-cutting measures the could predict what manufacturing overhead would be in the following months. But first he needed to determine the appropriate activity base. He thought there could be two possibilities: direct labour or the number of hours of operation From historical data, he retrieved the following information: Direct Labour Hours of Operation Manufacturing Overhead January $33,000 880 $204400 February 32,000 900 186,800 March 38,000 1,080 230,400 April 40.000 1,070 216,000 May 35,000 955 189.250 June 33,000 930 178,950 Ryan then asked CFO Jordan Leigh for information available to determine the cost of goods manufactured. Ryan was provided with the following information 1 2 2 3. 4. The balances in the applicable inventory accounts at the beginning of the month were: Raw materials inventory $34.000 Work in process inventory $56,000 Raw material purchases for the month were $186.000. of the raw materials used in production. 75% could be traced to the actual production, and the rest was indirect materials. Ending raw materials inventory was $60,000 Actual costs for wages and salaries were $64,000, of which 60% was considered overhead the balance was direct labour. Hours of operation for the month were 660. Total manufacturing costs for the month were $330,000 Costs transferred into finished goods Inventory for the month were $310.000, 5. 6. 7. 8. 8. Using the high-low method, and based on the historical data provided, determine two possible cost formulas for manufacturing overhead. (Round answers to 2 decimal places, es. 2.75 wherever necessary) Cost Formula Based on direct labour $ X Based on hours of operation $ $ Using the cost formulas developed in the previous part, determine the manufacturing overhead and actual manufacturing overhead for the month. Manufacturing overhead Based on direct labour $ Based on hours of operation $ Actual $ Determine which activity base would be better for predicting manufacturing overhead. would be better choice as an activity base for predicting manufacturing overhead. Prepare a condensed cost of goods manufactured schedule, Waterways Corporation Schedule of Cost of Goods Manufactured $

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