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:

Monochlorination Product

A compound resulting from the chemical process of adding one chlorine atom to an organic molecule.

Relative Reactivity

A measure of how readily a chemical species engages in a reaction under specified conditions compared to other species.

Reactive Intermediates

Highly reactive species that are formed transiently during chemical reactions, often determining the product distribution.

Nucleophilic

Describes a type of chemical species that donates an electron pair to form a chemical bond in reaction, indicating a tendency to seek positively charged or electron-deficient sites.