Emily Carrigan was recently transferred to the Appliances Division of Delancy Corporation. Shortly after taking over her
Question:
To compute the predetermined overhead rate, Carrigan divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labour-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, Harry Dafoe, went like this: Carrigan: 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 for this year.
Required:
1. Explain how shaving 5% off the estimated direct labour-hours in the base for the predetermined overhead rate usually results in a big boost in operating income at the end of the fiscal year.
2. Should Carrigan go along with the general manager’s request to reduce the direct labour-hours in the predetermined overhead rate computation to 105,000 direct labour- hours?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For
Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb
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