The Valley Forge Company Cost Accountant Wants to Determine the Cost

question 59

Essay

The Valley Forge Company cost accountant wants to determine the cost behaviour for overhead.Based on observation and discussion with the plant workers,the following accounts have been identified as the most relevant: supervisor salaries and depreciation are believed to be generally be fixed; indirect labour,utilities,and purchasing are generally believed to be variable; indirect labour primarily is responsible for moving materials; utility cost is primarily caused by the electricity to run machinery; and purchasing costs are driven by the number of purchase orders.These accounts and their balances are given below:
$\begin{array}{|l|r|r|r|r|r|}\hline&&&&&\text { Depreciation } \\&\text { Indirect } &&&\text { Supervisory }&\text { on Plant and } \\ &\text { Labour } & \text { Utilities } & \text { Purchasing } & \text { Salaries } &\text { Equipment }\\\hline \text { July } & \$ 28,500 & \$ 24,000 & \$ 76,400 & \$ 40,000 & \$ 13,000 \\\hline \text { August } & 31,600 & 21,200 & 70,800 & 46,000 & 13,000 \\\hline \text { September } & 33,600 & 25,000 & 75,200 & 64,000 & 13,000 \\\hline \text { October } & 41,400 & 25,000 & 80,400 & 55,600 & 13,000 \\\hline \text { November } & 40,000 & 25,000 & 79,800 & 50,800 & 13,000 \\\hline \text { December } & 34,000 & 25,000 & 79,400 & 34,000 & 13,000 \\\hline \text { Total } & \$ 209,100 & \$ 145,200 & \$ 462,000 & \$ 290,400 & \$ 78,000\\\hline\end{array}$ Information on the activities is given below:
$$\begin{array} { | l | c | c | c | } \hline & \text { \# af Moves } & \text { Machine Hours } & \text { Purchase Orders } \\\hline \text { July } & 340 & 5,400 & 250 \\\hline \text { August } & 380 & 5,200 & 300 \\\hline \text { September } & 400 & 5,800 & 450 \\\hline \text { Octaber } & 500 & 6,200 & 380 \\\hline \text { November } & 480 & 6,000 & 340 \\\hline \text { December } & 420 & 5,600 & 200 \\\hline \text { Total } & 2,520 & 34,200 & 1,920 \\\hline\end{array}$$ i.Why did the cost accountant decide that salaries and depreciation were fixed?
ii.Calculate the average account balance for each of the five accounts and calculate the average monthly amount for each of the three drivers.
iii.Calculate the fixed overhead and variable rates for each of the costs.Write an equation for the total overhead cost.
iv.In January,490 moves; 4,375 machine hours,and 220 purchase orders were expected.What is the amount of overhead predicted?

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Definitions:

Conservative Reaction

A response, typically by right-leaning groups, towards preserving traditional values and resisting changes to social or political structures.

Revolution

A fundamental and rapid change in political power or organizational structures that occurs when the population revolts against current authorities, often leading to significant social transformation.

Charles de Montesquieu

was an 18th-century French philosopher known for his theory of the separation of powers, which informs much of modern democratic government structure.

Natural State

A concept referring to the condition of human society or individuals in an environment not significantly altered by human intervention.