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Week 7DQ 2 Exam Review
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ACCT 505 Week 2 Case 3-29 Ethics and the Manager
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CASE 3–29 Ethics and the Manager [Course Objective B] Terri
Ronsin had recently been transferred to the Home Security Systems
Division of National Home Products. Shortly after taking over her new
position as divisional controller, she was asked to develop the division’s
predetermined overhead rate for the upcoming year. The accuracy of the
rate is important because it is used throughout the year and any
overapplied or underapplied over- head is closed out to Cost of Goods
Sold at the end of the year. National Home Products uses direct labor-
hours in all of its divisions as the allocation base for manufacturing
overhead.
To compute the predetermined overhead rate, Terri divided her estimate
of the total manufacturing overhead for the coming year by the
production manager’s estimate of the total direct labor-hours for the
coming year. She took her computations to the division’s general
manager for approval but was quite surprised when he suggested a
modification in the base. Her conversation with the general manager of
the Home Security Systems Division, Harry Irving, went like this: