Clearview Display Company Manufactures Display Cases to Be Sold to Retail

question 85

Essay

Clearview Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes-Large, Medium, and Small. Currently, Clearview Display Company uses a single plantwide overhead rate to allocate its $7,141,100 of annual manufacturing overhead. Of this amount, $1,875,000 is associated with the Large Case line, $2,992,500 is associated with the Medium Case line, and $2,273,600 is associated with the Small Case line. Clearview Display Company is currently running a total of 37,000 machine hours: 12,500 in the Large Case line, 13,300 in the Medium Case line, and 11,200 in the Small Case line. Clearview Display Company uses machine hours as the cost driver for manufacturing overhead costs.
Required:
a. Calculate the plantwide manufacturing overhead rate.
b. Calculate the departmental overhead rate for each of the three departments listed.
c. Which product line(s) have been overcosted by using the plantwide manufacturing overhead rate? By how much per machine hour? Which product line(s) have been undercosted by using the plantwide manufacturing overhead rate? By how much per machine hour?

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Definitions:

Residual Standard Deviation

A measure of the amount of variation in a set of observed values that is not explained by a statistical model, representing the standard deviation of the differences between predicted and observed values.

Regression Model

A mathematical representation used to estimate the relationship between a dependent variable and one or more independent variables.

Normally Distributed Residuals

Residuals (the differences between observed and predicted values) that are distributed according to a normal distribution, indicating a good fit for a linear model.

Normal Probability Plot

A graphical technique used to determine if a data set approximates a normal distribution, by plotting observed values against theoretically expected values in a normal distribution.