Financial Accounting - Need your help! Will reward well! Question Details E4-1 O

Question

Financial Accounting - Need your help! Will reward well!

Question Details


E4-1

Operating Leverage [LO 5]

John Diaz owns Pacific Electric, a large electrical contracting firm that provides services to building construction projects. The company has 2,000 employees and operates in three western states. Recently the company experienced large losses due to a downturn in the economy and a slowdown in construction. John thinks the losses were particularly large because his company has too much fixed cost.


Expand on John's thought. How are the large losses related to fixed costs?


Identify a way that John can turn potential fixed costs into variable costs.






E6-12


Problems Associated with Too Few Cost Pools [LO 4]


Mott Manufacturing allocates factory overhead using one cost pool
with direct labor hours as the allocation base. Mott has two production
departments, P1 and P2. The new accountant at Mott estimates that next year, the
total factory overhead costs will be $5,000,000, and approximately 500,000
direct labor hours will be worked. The accountant also estimates that P1 will
use 150,000 direct labor hours, and there will be about $3,000,000 in overhead
costs in P1. P2 will use 350,000 direct labor hours, and there will be
$2,000,000 in overhead costs in P2. Mott has two products, A1 and B1. It takes
two direct labor hours in P1 and three direct labor hours in P2 to complete one
unit of A1. It takes one direct labor hour in P1 and four direct labor hours in
P2 to complete one unit of B1.

Which product will be undercosted and which will be overcosted
with the one-cost-pool system?


A1 Undercosted or overcosted

B1 Undercosted or overcosted

Explanation / Answer

P1

P2

Total

A1

2

3

B1

1

4

A1

40

17.1

57.1

B1

20

22.8

42.8

P1

P2

Total

Factory overhead $3,000,000 $2,000,000 $5,000,000 Direct labor hours 150000 350000 500000 Factory overhead per labor hour 20 5.7 10 Products

A1

2

3

B1

1

4

Factory overheads:

A1

40

17.1

57.1

B1

20

22.8

42.8

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.