Please answer the following:?
Cristin Madsen has recently been transferred to the Appliances Division of Solequin Corporation. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is of some importance, since it is used throughout the year and any overapplied or underapplied overhead is closed out to Cost of Goods Sold only at the end of the year. Solequin Corporation uses direct labor-hours in all of its divisions as the allocation base for manufacturing overhead. To compute the predetermined overhead rate, Cristin divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor-hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the base. Her conversation with the general manager of the Appliances Division, Lance Jusic, went like this: Madsen: Here are my calculations for next year’s predetermined overhead rate. If you approve, we can enter the rate into the computer on January 1 and be up and running in the job-order costing system right away this year. Jusic: Thanks for coming up with the calculations so quickly, and they look just fine. There is, however, one slight modification I would like to see. Your estimate of the total direct labor-hours for the year is 110,000 hours. How about cutting that to about 105,000 hours? Madsen: I don’t know if I can do that. The production manager says she will need about 110,000 direct labor-hours to meet the sales projections for next year. Besides, there are going to be over 108,000 direct labor-hours during the current year and sales are projected to be higher next year. Jusic: Cristin, I know all of that. I would still like to reduce the direct labor-hours in the base to something like 105,000 hours. You probably don’t know that I had an agreement with your predecessor as divisional controller to shave 5% or so off the estimated direct labor-hours every year. That way, we kept a reserve that usually resulted in a big boost to net income at the end of the fiscal year in December. We called it our Christmas bonus. Corporate headquarters always seemed as pleased as punch that we could pull off such a miracle at the end of the year. This system has worked well for many years, and I don’t want to change it now. Required: 1. Explain how shaving 5% off the estimated direct labor-hours in the base for the predetermined overhead rate usually results in a big boost in net income at the end of the fiscal year. 2. Should Cristin Madsen go along with the general manager’s request to reduce the direct labor-hours in the predetermined overhead rate computation to 105,000 direct labor-hours?
Asked By: Diane-1 - 8/3/2007
Best Answer - Chosen by Asker
You need to do your own homework. It's cheating.
Answered By: shelcom - 8/3/2007
Additional Answers (2)
Whoever actually reads this has too much time on their hands. Sorry, too much investment of my time. Oh, by the way, you're reported.
Answered By: the_potatomuncher - 8/3/2007
Decreasing the direct labor hours by about 5 percent will increase the overhead rate by about 5 percent. At the end of the year, actual overhead will be less than applied overhead, resulting in a favorable overhead variance. Cost of goods sold will have absorbed the actual direct labor hours. The favorable overhead... More
Answered By: Serge M - 8/3/2007
Over 483 Local Jobs Now Hiring In Your Area. $18-$87/Hr - Apply Today!
Click to learn a simple system to get paid on bills people pay monthly.
Open Interviews August 1st & 2nd. Hiring to Fill Immediate Openings!
Legitimate Survey for Cash.Extra Money for You,Join Here!
Other Career Questions
Do most mechanical engineering jobs offer job security?
What is your current job? Why did you choose this job? What do you enjoy about your job? What do you dislike about your job? What would be your perfect job? Would you rather have this j...
Where are the jobs? Is productivity and globalization creating a permanent “recession” of jobs? My main issue is I am doing a paper for school and have no idea where to begin. I was hoping suggestions...
Content is not owned or controlled by Monster. Any content concerns should be addressed with Yahoo!
Yahoo! Does not evaluate or guarantee the accuracy of any Yahoo! Answers content. Yahoo! Disclaimer.
Best-Paying Work-from-Home Jobs
It’s easier than ever to work from home. Of course, not every job is a mobile job, and some companies aren’t interested in having their employees work from home.
2013 Marketing Jobs Outlook
The US may be facing another year of anemic hiring overall, but that won't be the case in the high-orbit world of multichannel, digital media marketing.
2013 Engineering Jobs Outlook
Engineers will find job opportunities in select disciplines in 2013, with candidates who are all-around, client-oriented businesspeople in demand.
Best-Paying Jobs by Major
What could you earn with a particular four-year degree? Find out by checking out this list of the top-paying jobs for 20 of the most common majors.
Eight High-Paying, Secure Jobs
Want to earn a good salary and enjoy a measure of job security as well? Check out these well-paying jobs on tap for fast growth in the coming years.