Question

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Activity		Cost		Driver
Setting up machines	$	18,040		22	batches
Inspecting components	$	5,100		5,100	parts
Providing utilities	$	10,200		5,100	machine hours

Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615.

Direct materials	$	2,700
Direct labor	$	3,100
Batches		4	batches
Number of parts		570	parts
Machine hours		660	machine hours

Required:
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
  

	Setting up machines Inspecting components Providing utilities

2. What is the total cost of Job 615 if Business Solutions applies overhead at 50% of direct labor cost?
  

	Total cost

3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?

	Total manufacturing cost

Answer 1

1.)
Setting Up Machines		Batch Level
Inspecting Components		Unit Level
Providing Utilities		Facility Level
2.) Cost of Job 615
Direct Materials		$2,700.00
Direct labour		$3,100.00
Overhead Costs		$1,550.00
(50% of Direct labour Hr.)
Total Cost		$7,350.00	ANS
3.)
Under Activity Based Costing
Activity			Cost	Driver	Cost per Driver
Setting Up of Machines			$18,040.00	22	$820.00
Inspecting Compnents			$5,100.00	5100	$1.00
Providing utilities			$10,200.00	5100	$2.00
Cost of Job 615
Direct Material					$2,700.00
Direct Labour					$3,100.00
Setting Up Machines
Batches * Cost driver Rate		(4 * 840)			$3,360.00
Inspecting Components
Parts * Cost Driver Rate		(1 * 570)			$570.00
Providing Utilities
Machine Hours * Cost Drver Rate			(660 * 2)		$1,320.00
			TOTAL COST		$11,050.00	ANS

THANK YOU

HOPING FOR A POSITIVE RESPONSE