: Comprehensive Problem 5

| October 22, 2018

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NAME _____________________________________COMPREHENSIVE
PROBLEM 5
Textbook page 949 __DATE ____________________________THE
GILSTER COMPANY

a. Plant wide overhead rate using direct labor hours:

.png”>Overhead Rate
(formula) =
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.png”> = $_______ per direct labor hour

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Total manufacturing cost per unit for Job
110:

_________________________ $_______________

_________________________ ________________

_________________________ ________________

_________________________ ________________

Total
Cost $_________________

Total cost/unit = ________________ =
$__________ per unit

b. Plant wide Overhead Rate:

.png”>Using Machine Hrs
(formula) =
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.png”> =
$_______ per machine hour

Overhead Rate:

.png”>Department A
(formula) =
.png”>

.png”> =
$_______ per machine hour

.png”>Department B
(formula) =

.png”>

.png”> =
$_______ per machine hour

Total manufacturing
cost per unit for Job 110:

_________________________ $_______________

_________________________ ________________

_________________________ ________________

_________________________ ________________

_________________________ ________________

_________________________ ________________

Total Cost $_________________

Total cost/unit = ________________ =
$__________ per unit

COMPREHENSIVE PROBLEM 5
THE GILSTER COMPANY(continued)

c. Bid price for Job 110 (plantwide rate):

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Bid
price for Job 110 (separate overhead rates):

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The bids differ due to the differences in
manufacturing overhead that are applied to the job using the two allocation
methods. The overhead differences are due to
(1)_________________________________________________________________________and

(2)_________________________________________________________________________
The allocation scheme employed in part b. would
be recommended because the departmental overhead is due mostly to
machine-related expenses and the use of multiple overhead rates allows for allocation
that more closely resembles the use of resources.
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d.
Applied overhead based on machine hours:

Plant wide (__________________________________) ________________

Department A ($______ x _________machine hrs.) ________________

Department B ($______ x _________machine hrs.) ________________

Total overhead applied $_________________

Under-
or over-applied overhead:

Actual
overhead was $_____________ ($_____________ + ____________ + _____________), so
the amount over or under
applied was $_____________ (_____________ –
_____________).

Effect
of overhead proration vs. assignment to cost of goods sold:

Correcting
the application by reducing cost of goods sold would increase net income for
the current year by more than would have resulted if the correction was
prorated between cost of goods sold and inventories.

COMPREHENSIVE
PROBLEM 5
THE GILSTER COMPANY (concluded)
e.
.png”>Incremental analysis:
The cost per unit
calculated in part b ($______/unit) is more or less than the contractors price
of $8 per unit. Assuming the capacity would be otherwise idle and not produce
any other revenue, Glister would be better off
_____________________________________________________________________________________________________________________________________________.
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f. The incremental cost of buying the parts from the
subcontractor would be:
$___________
($______ x ___________units) which is more or less than the incremental profit
earned by producing the other job.
Thus, total
profits would increase or
decrease by $___________ ($_________ – $_________) if the subcontractor
is used to produce the parts for Job 110 and Glister uses its _______________ _______________to
produce the other job.

g. and h. are not required – the
suggested solutions are completed below for your information.
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g.
Environmental considerations for Mexico:

As discussed
in Chapter 15, legal/political, economic, cultural, and
technologicalenvironmental categories affect international operations. In the
economic category animportant issue is exchange rate transaction risk, which
would in part be determined bywhether the contracts are denominated in U.S.
dollars or Mexican pesos. In the legal/politicalcategory issues include NAFTA
regulations and the general risk undertaken by doing businessin a politically
less stable environment. The impact of import duties and possibly
highershipping costs on profits should be considered. Finally, the skill level
of the labor force interms of producing a high-quality product would also be a
consideration.

h. Changes needed to use
target costing:

To
successfully implement target costing, Gilster would need to adopt a more
customerorientedapproach. The marketing department would need to determine what
prices customerswould be willing to pay for Gilster’s products. Including the
entire value chain in the targetcosting process is required. In addition,
target returns would need to be determined so thattarget costs could be
calculated.

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