Ortega Manufacturing Company produced 600 units of inventory in January 2014. The company expects to produce an additional 6,400 units of inventory during the remaining 11 months of the year, for a total estimated production of 7,000 units in 2014. Direct materials and direct labor costs are $64 and $78 per unit, respectively. Ortega expects to incur the following manufacturing overhead costs during the 2014 accounting period:
Indirect materials ............. $ 5,000
Depreciation on equipment .......... 24,000
Utilities cost ............... 10,000
Salaries of plant manager and staff ...... 96,000
Rental fee on manufacturing facilities ..... 19,000

a. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units.
b. Determine the estimated cost of the 600 units of product made in January.
c. Is the cost computed in Requirement a actual or estimated? Could Ortega improve accuracy by waiting until December to determine the cost of products? Identify two reasons that a manager would want to know the cost of products in January. Discuss the relationship between accuracy and relevance as it pertains to this problem.

  • CreatedFebruary 07, 2014
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