Managerial Accounting

Question #2

#2 Lizzie Incorporated processes large pieces of granite into finely finished countertops. Production occurs in two phases - sawing and polishing. The sawing phase is almost entirely automated and costs are largely driven by processing time on a computerized sawing machine. Polishing is a labor intensive process, and the amount of time on a particular job varies considerably based on the intrinsic stone quality and the desired sheen for a particular job.

These estimates were used to determine the applicable factory overhead application rates:

Sawing Polishing

Direct labor ($ 20,000) ($ 1,000,000)

Direct materials A ($ 60,000) Factory overhead ($ 300,000) ($ 200,000)

Direct labor hours (30,000) A Machine hours A (20,000)

At the end of the year, the company determined that actual data was as follows:

Sawing Polishing

Direct labor ($ 30,000) ($ 926,000)

Direct materials A ($ 54,000) Factory overhead ($ 290,000) ($ 215,000)

Direct labor hours (24,000) (75,300)

Sawing machine hours (90,000) (15,111)

(a)

Select a variable "A," a number between 81,111 and 81,999

(b) Calculate the predetermined factory overhead allocation rate based on factory-wide direct material costs. Journalize the application of overhead for the year and any true-up of under or over-applied factory overhead at the end of the year, if necessary. Show the journal entries and the general ledger T account for the Factory Overhead control account. (10 points)

(c) Calculate the predetermined factory overhead allocation rate based on a departmental basis using machine hours for the Sawing departent and direct labor hours for the Polishing department. Journalize the application of overhead for the year and any true-up of under or over-applied factory overhead at the end of the year, if necessary. Show the journal entries and the general ledger T account for the Factory Overhead control account. (15 points)