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A company makes customized components to specifications. Its old cost accounting system allocated all overhead costs...

A company makes customized components to specifications. Its old cost accounting system allocated all overhead costs to customer jobs based on machine hours. Its new activity-based costing system uses the following information:

Activity Cost Pool and Budgeted Costs: Machine setup $ 90,000, Supervision 140,000, Machine maintenance 170,000

Activity Cost Driver and Estimated Cost Driver Level: Number of setups 180, Direct labor hours 4,000m Machine-hours 5,000

A new Kamlet Company’s order requires 4 setups, 30 direct labor hours and 50 machine-hours.

1. What was the overhead rate in the old cost accounting system? $___ per machine hours

2. What was the total overhead cost charged to the Kamlet Company’s order under the old cost accounting system?

3. What is the overhead rate for the supervision activity in the new activity-based costing system?

4. What is the amount of overhead charged to the Kamlet Company order for the supervision activity under the new activity-based costing system?

5. What is the total overhead cost charged to the Kamlet Company order under the new activity-based costing system?

Expert Solution

Solution 1:

Estimated Budgeted costs = $90,000 + $140,000 +$170,000 = $400,000

Esmated machine hours = 5000 hours

Overhead rate in old cost accounting system = estimated Overhead / estimated machine hours
= 400,000/ 5000 = $80 per machine hour

Solution 2:

Total Overhead cost charged to Kamlet Company's order = Machine hours required in order*Overhead rate
= 50 *$80 = $4,000

Solution 3:

Overhead rate for Supervision Activity in ABC costing stystem = Supervision overhead / Direct labor hours
$140000 / 4000 = $35 per labor hour

Solution 4:

Supervision overhead charged to kamlet company's order under ABC system = 30 *$35 = $1050

Solution 5:

Activity Cost pool	Budgeted Costs	Activity cost driver	Estimated Cost Driver level	Overhead Rate	Cost driver in Kamlet's order	Allocated Overhead to Kamlet company's order
Machine Setup	$90,000.00	No. of setups	180	$500.00	4	$2,000.00
Supervision	$140,000.00	Direct labor hours	4000	$35.00	30	$1,050.00
Machine Maintenance	$170,000.00	Machine hours	5000	$34.00	50	$1,700.00

Total Overhead costs	$400,000.00					$4,750.00

Therefore, Total overhead charged to kamlet company's order under ABC Sysyem = $4,750

ekkarill92 answered 2 years ago

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