Question

Catalina Sails makes sails for small sailboats. It recently switched to activity-based costing from the department product costing method. The manager of Department Y, which manufactures the sails, has identified the following cost drivers and rates for overhead: Activity Centers Cost Drivers Rate per Cost Driver Unit Materials handling Yards of material handled $ 1.20 per yard Quality inspections Number of inspections $ 120 per inspection Machine setups Number of machine setups $ 600 per setup Running machines Number of machine-hours $ 12 per hour Direct materials costs were $204,000 and direct labor costs were $82,000 during October, when Building S handled 38,400 yards of materials, made 900 inspections, had 110 setups, and ran the machines for 18,900 hours. Required: Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory.

Answer 1

ANSWER

Calculation of overhead cost
Activity Centre	Cost Driver	Rate per cost driver unit	driver no.	Total cost
Material Handling	Yards of material handling	$1.20	38,400	$46,080
Quality Inspections	Number of Inspections	$120	900	$108,000
Machine setup	Number of machine setup	$600	110	$66,000
Running Machine	Number of machine hours	$12	18,900	$226,800
Total overhead cost				$446,880
T Accounts of Work Process
Debit	Work Process		Credit
Direct Material	$204,000	Finished goods	$732,880
Direct Labour	$82,000
Overhead cost	$446,880
Total	$732,880	Total	$732,880

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