Refer to the information in Exercise 7-35. The controller at Marine Components chose direct labor cost as
Question:
Manufacturing overhead for year 3 is estimated to be $12 million. Other budgeted data for year 3 include:
Information From Exercise 7-35
Client 1 Client 3
Machine-hours (thousands) . . . . . . 3,000 7,000
Direct labor cost ($000) . . . . . . . . . $3,000 $3,000
Required
a. Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead.
b. Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.
c. Which allocation base will provide higher income for Marine Components?
d. The controller decides that for year 3 the firm will use machine-hours to apply overhead to jobs. Is this ethical?
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-1259565403
5th edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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