Accounting Question

Question 1

Product and period costs are essential for any company because it enables the company to effectively estimate and determine the total net income as per the specific time outlined in the company's income statement. There are various differences between these two costs. Ideally, product costs are expenses that business organizations incur from manufacturing a specific product as well as providing services. For instance, manufacturers experience product costs through the labor and raw materials utilized to make products in the manufacturing sector. There are three distinct examples of product costs (Graybeal et al., 2020). This includes the direct labor cost, direct material, and overhead costs. On the other hand, period costs, commonly referred to as accounting or managerial costs, are not directly related to the production of any inventory. Instead, they complement the goods and services produced or provided by the company. Examples of period costs include all administrative expenses, selling of products, marketing, rent expenses for corporate, departmental heads or offices, and the salaries of key subordinates within the organization.  Therefore, the period costs are mainly connected with time passage and can never be attached to any inventorial costs.

Question 2

The utilization rate is always expressed in percentage form. Therefore, it can be defined as how much of the available time can be effectively utilized in productive work. In today's most dynamic and competitive business environment, various firms use the utilization rate to maximize production time from their employees. Besides, the utilization rate the organization's billing efficiency as well as the maximum effort that each individual worker puts in production. Santacreu (2016) defines it as the amount of billable time the employers can essentially extract from the available time of their working employees. This billable time reflects the maximum time the employee can spend serving a single customer. Industry standards presume that a successful staff utilization rate should always be above 85% (Santacreu, 2016). Therefore, the utilization rate can be calculated by just taking the number of billable hours then divide them by the total number of available hours. Others divide the number of billable hours by the fixed number of hours in a given week. But since it is always expressed in percentage form, the calculated value is multiplied by 100% to get its utilization rate. For instance, suppose a company records 36 hours of billable time from a total fixed 42 hours a week. Then the utilization rate will be calculated as follows

Utilization rate =36 hours42 hours * 100%=85.71% 

 

Question 3

Part (a)

The overhead allocation rate is calculated by ideally dividing the total fixed overhead by the estimated number of direct labor hours, which is the estimated machine hours. Thus;

Overheard allocation rate = Estimated fixed factory overhead costEstimated Machine hours

 

= 160000100000=1.60 per machine hour

 

Therefore,  the overhead allocation rate is 1.60 per machine hour

Part (b)

The overhead allocated to job 1040 will be calculated by taking the machine hours used in Job 1040  and then multiply it with the overhead allocation rate obtained from part (a). Therefore,

= 15000*1.60 = 24000

 

Therefore, the overhead allocated to job 1040 is 24000

Part (c)

Overhead expenses can either be overapplied or underapplied. Overapplied overhead is attained when the costs incurred are less than the anticipated budgeted accounts by the company (Graybeal et al., 2020). However, if the costs are more than the company's budgeted accounts, they become underapplied overhead. Therefore, to calculate the total over or underapplied overhead, we first determine the total overhead costs applied by multiplying the actual hours with the overhead allocation rate.

Total applied overhead = Actual Hours * Overhead allocation rate

 = 110000*1.60 = 176000.00

Therefore, the total over or underapplied overhead per year will be:

= Applied overhead - Actual overhead incurred

= 176000 – 170000

= 6,000 Overapplied

Therefore the overhead is overapplied by 6000.00