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Part 1. New Firm uses an ABC system. The system includes 4 cost pools: mixing, machining...

Part 1. New Firm uses an ABC system. The system includes 4 cost pools: mixing, machining finishing and packing.  Mixing is allocated on the basis of DM cost; machining is allocated on the basis of machine hours; finishing is allocated on the basis of DL hours and packing is allocated on the basis of product weight. At the beginning of this year, the following estimates were made

                    Direct Materials                             $734,000

                    Direct Labor                                     953,000

                    Mixing cost                                      377,000

                    Machining cost                                 721,000

                    Finishing cost                                   467,000

                    Packing cost                                     167,000

                    Units produced                                        800

                    Average weight per unit                            89 ounces

                    DL hours                                            32,000

                    Machine hours                                  306,000

                    

Job 491 was produced on June 16.  It contained $3,890 in DM and $8,400 in DL.  It weighed 52 ounces.  Production required 416 DLH and 981 machine hours.  

  1. Assuming the firm uses a traditional job costing system applied on the basis of DLH, what is the cost of Job 491?

  1. Assuming the firm uses an ABC system, what is the cost of Job 491?

Solutions

Expert Solution

Calculation of total cost using absorption costing
Particulars Cost
Mixing 377000
Machining 721000
Finishing 467000
Packing 167000
Total Overhead cost 1732000
Total Direct labour hrs 32000
Overhead absorption per hr 54.125
Cost of Job 491
Particulars Amt
Direct material           3,890
Direct labour           8,400
Overhead cost        22,516
54.125/hr X 416labour hrs
Total Cost        34,806
Calculation of total cost using Activity Based costing
Mixing Machining Finishing Packing
A Cost 377000 721000 467000 167000
B Activity DM Cost Machine hrs DL hrs Weight of product
C Total respectivie activity 734000 306000 32000 71200 (800*89)
D Per activity cost (A/C) 0.514 2.356 14.594 2.346
Particulars Amt Amt
Direct material         3,890
Direct labour         8,400
Overheads
Mixing
(3890 X 0.514)            1,998
Machining
(981*2.356)            2,311
Finishing
(416DL hrs X 14.594)            6,071
Packing
(52 ounces X 2.346/ounce)                122
Total overheads      10,502
Total cost      22,792

ekkarill92 answered 1 year ago
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