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1.Job Costs Using a Plantwide Overhead Rate Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was \$375,000, and budgeted direct labor hours were 25,000. The average wage rate for direct labor is expected to be \$30 per hour. During June, Naranjo Company worked on four jobs. Data relating to these four jobs follow: Job 39 Job 40 Job 41 Job 42 Beginning balance \$24,900 \$34,800 \$17,700 \$100 Materials requisitioned 19,900 21,400 12,500 15,300 Direct labor cost 11,000 18,500 7,150 6,200 Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 110 percent of cost. (Naranjo had originally developed Job 40 to order for a customer; however, that customer was near bankruptcy and the chance of Naranjo being paid was growing dimmer. Naranjo decided to hold Job 40 in inventory while the customer worked out its financial difficulties. Job 40 is the only job in Finished Goods Inventory.) Jobs 41 and 42 remain unfinished at the end of the month. Required: 1. Calculate the overhead rate based on direct labor cost. % of direct labor cost
2. Set up a simple job-order cost sheet for all jobs in process during June. Naranjo Company Job-Order Cost Sheets Job 39 Job 40 Job 41 Job 42 Balance, June 1 \$ \$ Total \$ \$ \$ 3. What if the expected direct labor rate at the beginning of the year was \$24 instead of \$30? What would the overhead rate be? If required, round your overhead rate answer to one decimal place. New budgeted direct labor cost = \$ New overhead rate = % of direct labor cost How would the cost of the jobs be affected?

2.Sportswear brand Locaf will put on sale what it claims to be the world's first computerized “smart shoe.” However, consumers will decide whether to accept the \$300 price tag-four times the average shoe price at stores for bionic sneakers. Locaf uses sensors, a microprocessor, and a motorized cable system to automatically adjust the cushion of the shoe. The sensors under the heel measure compression and determine whether the shoe is too soft or too tight. That information is sent to the microprocessor and the cable adjusts the heel cushion while the shoe is in the air. The whole system weighs less than 40 grams. Locaf Auto-Force, computer driven shoe-three years in the making-is the latest innovations in the US sneaker industry worth \$16.4 billion. The top-end running shoe from Prespecs lists for \$199.99. With runners typically replacing shoes every 500 kilometers, the \$300 Auto-Force could push costs to 60 cents per kilometer. Locaf is spending an estimated \$20 million on the rollout. The investment required to develop a full-fledged commercial rollout is \$80 million (including the \$20 million ad campaign), which will be financed at an interest rate of 12%. With a price tag of \$300, Locaf will earn about \$120 net cash profit from each sale. The product will have a five-year market life. Assuming that the annual demand for the product remains constant over the market life, how many units does Locaf have to sell each year to pay off the initial investment and interest?

3.EcoFabrics has budgeted overhead costs of \$1,105,650. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 526,500 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the cutting cost pool is \$421.200 and \$684,450 is allocated to the design cost pool. Additional information related to these pools is as follows. Wool 117,000 1.170 Cotton 117.000 Machine hours Number of setups Total 234,000 1.755 585
Calculate the overhead rate using activity based costing. (Round answers to 2 decimal places, eg. 12.25.) Overhead rates for activity-based costing Cutting \$ 1.80 per machine hour Design 390.00 per setup
Determine the amount of overhead allocated to the wool product line and the cotton product line using activity-based costing. Cotton product line Wool product line 666,900 Overhead Allocated \$ 438,750
What amount of overhead would be allocated to the wool and cotton product lines using the traditional approach, assuming direct labor hours were incurred evenly between the wool and cotton? Wool product line Cotton product line Overhead Allocated \$.

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