Elfie Enterprises Uses Three Cost Pools to Allocate Manufacturing Overhead

question 29

Essay

Elfie Enterprises uses three cost pools to allocate manufacturing overhead costs.The following estimates were provided for the coming year.

The accounting records show the Lacio Job consumed the following resources.

Required:
a. If direct labor hours are considered the only manufacturing overhead cost driver,compute:
1.the single cost driver rate for Elfie Enterprises; and
2.the amount of manufacturing overhead costs allocated to the Lacio job.
b. If Elfie Enterprises uses the three cost pools to allocate manufacturing overhead costs,compute:
1.the cost driver rate for each of the three overhead activities above; and
2.the amount of manufacturing overhead costs allocated to the Lacio job.
c. Review the amount of manufacturing overhead costs allocated in (a2)and (b2).Why do the two estimates differ? Which method of allocation probably best estimates the actual manufacturing overhead costs used? Why?.

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Definitions:

Prior Writedown

A reduction in the book value of an asset when its market value falls below its current book value, previously accounted for in financial statements.

Consigned Goods

Items given to a third party to sell on behalf of the owner, but the owner retains ownership until the goods are sold.

Ownership

The legal right or state of having full possession and control over property, assets, or a company.

Method Of Cost Formula

The Method of Cost Formula refers to an accounting approach used to determine the value of inventory sold and remaining in stock, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Average Cost Method.