Question

Calculating Activity-Based Costing Overhead Rates Assume that manufacturing overhead for Goldratt Company consisted of the following activities and costs:

Setup (1,000 setup hours) $118,000

Production scheduling (400 batches) 30,000

Production engineering (60 change orders) 90,000

Supervision (2,000 direct labor hours)

64,000 Machine maintenance (12,000 machine hours)

84,000 Total activity costs $386,000

The following additional data were provided for Job 845: Direct materials costs $7,000 Direct labor cost (5 Milling direct labor hours;35 Finishing direct labor hours) $1,000 Setup hours 5 hours Production scheduling 1 batch Machine hours used (25 Milling machine hours;5 Finishing machine hours) 30 hours Production engineering 3 change orders

(a) Calculate the cost per unit of activity driver for each activity cost category. Setup $ Answer Production scheduling $ Answer Production engineering $ Answer Supervision $ Answer Machine maintenance $ Answer

(b) Calculate the cost of Job 845 using ABC to assign the overhead costs. $ Answer

(c) Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours. (Round your answer to the nearest dollar.) $ Answer

(d) Calculate the cost of Job 845 using a machine hour departmental overhead rate for the Milling Department ($31 per hour) and a direct hour overhead rate for the Finishing Department ($101 per hour). (Round your answer to the nearest dollar.) $ Answer

Answer 1

1.

Setup ($118,000/1,000)	$118	per setup hours
Production scheduling ($30,000/400)	75	per batch
Production engineering ($90,000/60)	1,500	per change order
Supervision (64,000/2,000)	32	per direct labor hour
Machine maintenance (84,000/12,000)	7	per machine hour

2.

		Job 845
Direct material		$7,000
Direct labor		1,000
Overhead:
Setup (5*$118)	$590
Production scheduling (1*$75)	75
Production engineering (3*$1,500)	4,500
Supervision (40*$32)	1,280
Machine maintenance (30*$7)	210	6,655
Total cost		$14,655

3.

Plant-wide overhead rate = Estimated total manufacturing overhead cost / Estimated machine hours

Plant-wide overhead rate = $386,000 / 12,000 = $32.17

	Job 845
Direct material	$7,000
Direct labor	1,000
Overhead (30*$32.17)	965
Total cost	$8,965

4.

		Job 845
Direct material		$7,000
Direct labor		1,000
Overhead:
Milling department (25*$31)	$775
Finishing department (35*$101)	3,535	4,310
Total cost		$12,310