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Sawmill: Joint manufacturing costs: $900,000 Grade Quantity Produced (board feet) Price at Split-Off (per 1,000 board foot) Firsts and seconds 1,500,000 $300 No. 1 common 3,000,000 225 No. 2 common 1,875,000 140 No. 3 common 1,125,000 100 Total 7,500,000 Fabric Plant: Budgeted overhead: $1,200,000 (50% fixed) Practical volume (direct labor hours): 120,000 hours Actual overhead: $1,150,000 (50% fixed) Actual hours worked: Grade Weaving and Pattern Coloring and Bolting Total Fabric FB60 20,000 12,000 32,000 Fabric FB70 28,000 14,000 42,000 Fabric FB80 26,000 18,000 44,000 Total 74,000 44,000 118,000 Departmental data on Fabric FB70 (actual costs and actual outcomes):

Weaving and Pattern Coloring and Bolting Beginning inventories Units* 20,000 400 Costs: Transferred in $0 $100,000 Materials $80,000 $8,000 Labor $18,000 $6,600 Overhead $22,000 $9,000 Current production: Units started 80,000 ? Units transferred out 80,000 3,200 Costs: Transferred in $0 ? Materials $320,000 $82,000 Labor $208,000 $99,400 Overhead ? ? Percentage completion: Beginning inventory 30% 40% Ending inventory 40% 50% *Units are measured in yards for the Weaving and Pattern Department and in bolts for the Coloring and Bolting Department. Note: With the exception of the cardboard bolt rods, materials are added at the beginning of each process. The cost of the rods is relatively insignificant and is included in overhead.

Proposed standard cost sheet for Fabric FB70 (for the Coloring and Bolting Department only):

Transferred-in materials (25 yards @ $10) $250.00 Other materials (100 ounces @ $0.20) 20.00 Labor (3.1 hours @ $8) 24.80 Fixed overhead (3.1 hours @ $5) 15.50 Variable overhead (3.1 hours @ $5) 15.50 Standard cost per unit $325.80

Furniture Plant: Departmental data (budgeted): Service Departments Producing Departments Receiving Power Maintenance General Factory Cutting Assembly Overhead $450,000 $600,000 $300,000 $525,000 $750,000 $375,000 Machine hours - - - - 60,000 15,000 Receiving orders - - - - 13,500 9,000 Square feet 1,000 5,000 4,000 - 15,000 10,000 Direct labor hours - - - - 50,000 200,000 After some discussion with the furniture plant controller, Gisela decided to use machine hours to calculate the overhead rate for the Cutting Department and direct labor hours for the Assembly Department rate (the Cutting Department was more automated than the Assembly Department). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if overhead costing could be the source of the pricing problems the company was experiencing.

To assess the effect of the different overhead assignment procedures, Gisela decided to examine two prospective jobs. One job, Job A500, could produce 500 sofas, using a frequently requested style and Fabric FB70. Bids on this type of job were being lost more frequently to competitors. The second job, Job B75, would produce 75 specially designed recliners. This job involved a new design and was more difficult for the workers to build. It involved some special cutting requirements and an unfamiliar assembly. Recently, the company seemed to be winning more bids on jobs of this type. To compute the costs of the two jobs, Gisela assembled the following information on the two jobs:

Job A500: Direct materials: Fabric FB70 180 bolts @ $350 Lumber (No. 1 common) 20,000 board feet @ $0.12 Other components $26,600 Direct labor: Cutting Department 400 hours @ $10 Assembly Department 1,600 hours @ $8.75 Machine time: Cutting Department 350 machine hours Assembly Department 50 machine hours Job B75: Direct materials: Fabric FB70 26 yards @ $350 Lumber (first and seconds) 2,200 board feet @ $0.12 Other components $3,236 Direct labor: Cutting Department 70 hours @ $10 Assembly Department 240 hours @ $8.75 Machine time: Cutting Department 90 machine hours Assembly Department 15 machine hours

9. Calculate the following overhead rates for the furniture plant: (1) plantwide rate and (2) departmental rates. Use the direct method for assigning service costs to producing departments. Round your answers to two decimal places. Rate Plantwide rate 12.00 per DLH Cutting department 34.25 per MH Assembly department $ 4.73 per DLH 10. For each of the overhead rates computed in Requirement 9, calculate unit bid prices for Jobs A500 and B75. Round your answers to two decimal places. Unit Bid Plantwide rates Job A500 402.00 Job B75 382.40 Departmental rates. Job A500 $ 388.67 Job B75 $ 392.36 Standard cost would decrease the cost of Fabric FB70 for both jobs. For Job A500, prime costs will decrease by $1 X. And for Job B75, prime costs will decrease by $1 X. Thus, the bid for Job A500 will decrease by $ X. Similarly, the bid for Job B75 will decrease by $ X This tells us that we can apparently avoid including waste in our bid by using standard costs and improve our bidding. It also tells us that we need to focus on becoming more efficient

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