Ekpro Products manufactures containment chambers for environmentally friendly in
ID: 2423339 • Letter: E
Question
Ekpro Products manufactures containment chambers for environmentally friendly incinerators. Each chamber is built to customer specifications. Most of the direct labor time is spent on welding activities. Following is the job cost sheet for an incinerator manufactured for Benzate Corporation:
(b) Ekpro is considering installation of a robotic machine that will do all welding operations. How might this decision impact the total overhead and the application method?
Ekpro Job Cost Sheet 0 Benzate Applied Overhead Direct Labor Direct Material Total Cost Hours Rate Total Qty Total Qty Rate Total er May 8, 20X7 Rod Burner Sandy Sharp Steel May 9, 20X7 Sandy Sharp Applied Overhead S 225 $ 12 $ 800 9 $25 S 225 1 $12 S 12 10 80 $ 800 S 24 ?? S 360 360 $ 360 $1,421 2 $12 S 24 12 $ 261 $ 800Explanation / Answer
Answer:
(a) Answer.
Over heads are the expenditure which cannot be conveniently traced to or identified with any particular cost unit.
The following expenses should be included in OH expenses
Salries & wages of following persons shall be included in OH expenses :
Material handlers (forklift operators who move materials and units),People who set up the manufacturing equipment to the required specifications,People who inspect products as they are being produced,People who perform maintenance on the equipment,People who clean the manufacturing area People who perform record keeping for the manufacturing processes,Factory management team.
Electricity, natural gas, water, and sewer for operating the manufacturing facilities and equipment.
Computer and communication systems for the manufacturing function.
Repair parts for the manufacturing equipment and facilities.
Supplies for operating the manufacturing process.
Depreciation on the manufacturing equipment and facilities.
Insurance and property taxes on the manufacturing equipment and facilities.
Safety and environmental costs.
Total number of hours worked
Rod Burner = 9 + 2 = 11 Hrs
Sandy Sharp = 1 Hrs
Total Direct Labour Hours = 12 Hrs
Total Applied Over head = 360 $
Absorption rate per hour = 360 $ /12 = 30 $ Per Hr
(b) Answer
In case the expro uses the robotics machines for welding operations then the OH expenses shall be the Depreciation expenses of Robotic machine.Such depreciation overhead expenses shall be absorbed to Job based on usage of the machine hours for that welding operations.
(c) Answer
Overhead absorption is the amount of indirect costs assigned to cost objects. Indirect costs are costs that are not directly traceable to an activity or product. Cost objects are items for which costs are compiled, such as products, product lines, customers, retail stores, and distribution channels.
The Actual overhead rate is the total of indirect costs (known as overhead) for a specific reporting period, divided by an allocation measure. The cost ofoverhead can be comprised of either actual costs or budgeted costs.
Based on above Definitions Absorded overhead is assigned to cost units based on Estimations where as actual overhead is the actual expenses incurred for the particular cost unit it will known only at the end of the period so it will differs the actual overhead .
The Difference between the actual OH & Absorbed OH will be treated is as follows:
If overhead is under absorbed, this means that more actual overheadcosts were incurred than expected, with the difference being charged to Costing Profit & Loss account as the expense as incurred.
If the amount absorbed is more than the actual overheads costs , it would mean over-absorption of overheads and will inflate the costs. Over-absorption of overheads thus means the excess of overheads absorbed over the actual amount of overheads incurred.
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