Problem 15-47 Student Name:

Class:

Sounds Fine, Inc..

Computations

1. Budgeted overhead costs:

Department I Department II
Variable overhead #REF! #REF!
Fixed overhead #REF! #REF!
Total overhead #REF! #REF!
Total budgeted overhead for both
departments #REF!
Total expected direct-labor hours
for both departments #REF!
Predetermined overhead rate
per direct-labor hour #REF!

2. Price with absorption manufacturing cost plus

Basic Advanced
Total cost #REF! #REF!
Markup #REF! #REF!
Price #REF! #REF!

3. Departmental overhead rates:

Department I Department II
Budgeted overhead #REF! #REF!
Budgeted direct-labor hours #REF! #REF!
Predetermined overhead rate #REF! #REF!

4. Absorption cost of each speaker:

Basic Advanced
Direct material #REF! #REF!
Direct labor #REF! #REF!
Manufacturing overhead:
Department I #REF! #REF!
Department II #REF! #REF!
Total cost #REF! #REF!

5. Price using new absorption cost plus

Basic Advanced
Total cost #REF! #REF!
Markup #REF! #REF!
Price #REF! #REF!
6. Should Sounds Fine, Inc.. use plantwide or departmental
overhead rates? Explain your answer.
Problem 15-47 Student Name: Instructor
Class: McGraw-Hill/Irwin

Sounds Fine, Inc..

Computations

1. Budgeted overhead costs:

Department I Department II
Variable overhead $ 300,000 $ 150,000
Fixed overhead 150,000 150,000
Total overhead $ 450,000 $ 300,000
Total budgeted overhead for both
departments $ 750,000
Total expected direct-labor hours
for both departments 75,000
Predetermined overhead rate
per direct-labor hour $ 10.00

2. Price with absorption manufacturing cost plus

Basic Advanced
Total cost $ 400.00 $ 500.00
Markup 60.00 75.00
Price $ 460.00 $ 575.00

3. Departmental overhead rates:

Department I Department II
Budgeted overhead $ 450,000 $ 300,000
Budgeted direct-labor hours 37,500 37,500
Predetermined overhead rate $ 12.00 $ 8.00

4. Absorption cost of each speaker:

Basic Advanced
Direct material $ 160 $ 260
Direct labor 140 140
Manufacturing overhead:
Department I 24 96
Department II 64 16
Total cost $ 388 $ 512

5. Price using new absorption cost plus

Basic Advanced
Total cost $ 388.00 $ 512.00
Markup 58.20 76.80
Price $ 446.20 $ 588.80
6. Should Sounds Fine, Inc.. use plantwide or departmental
overhead rates? Explain your answer.

The management of Sounds Fine, Inc.. should use department overhead

rates. The overhead cost structures in the two production departments
are quire different, and departmental rates more accurately assign
overhead costs to products. When the company used a plantwide
overhead rate, the Basic speakers were overcosted and the Advanced
speakers were undercosted. This in turn resulted in the Basic model
being overpriced and the Advanced model being underpriced. The cost and
price distortion resulted from the following facts: (1) the Basic
speakers spend most of their production time in Department II, which is
the least costly of the two departments; and (2) the Advanced speakers
spend most of their production time in Department I, which is more
costly than Department II.