Lesson 16 - Analyzing Direct Costs - Essay Example

Based on the above computation, Question 5, Dept A, generates a lower factory overhead cost because the factory overhead rate of Question 5, $8.79 is lower than the Question 1, $9.20 factory overhead rate. On the other hand, Question 5 Dept B, generates a higher factory overhead cost because the factory overhead rate of Question 5, $12.07 is higher than the Question 1, $12.00 factory overhead rate. Dept A reduces the profit of Job 123 by $0.41 per direct labor hour. The total profit of job 123 is reduced by $77.40. (4) The buyers would prefer the plant-wide rate.

The plant-wide rate is lower than the department rate. Consequently, the buyers will pay a lower price for the manufactured products, when the plant-wide rate is chosen. The underabsorbed did not benefit the company or the customers (Schneider 128). With the actual amount higher than the applied amount, the company’s net profit will decline. Likewise, the customers have to pay a higher price for the product, if the company will increase its selling prices to recuperate the higher actual factory expenses.

In the same manner, the underabsorbed amount did not benefit the company or the customers. With the actual amount higher than the applied amount, the company’s net profit will decline. Likewise, the customers have to pay a higher price for the product, if the company will increase its selling prices to recuperate the higher actual factory expenses. In the same manner, the underabsorbed amount did not benefit the company or the customers. With the actual amount higher than the applied amount, the company’s net profit will decline.

Likewise, the customers have to pay a higher price for the product, if the company will increase its selling prices to recuperate the higher actual factory expenses. (3) In the Motley issue, the company is required to provide historical cost data of the $845,000 amount. The historical cost data is more reliable source