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In: Accounting

A local manufacturer has budgeted these overhead costs: Purchasing $88,000 Handling Materials 33,500 Machine Setups 75,200...

A local manufacturer has budgeted these overhead costs:

Purchasing $88,000
Handling Materials 33,500
Machine Setups 75,200
Inspections 30,000
Utilities 42,500

They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown:

Cost Driver Activity
Orders 800
Material Moves 1,340
Machine Setups 16,000
Number of Inspections 6,000
Square Feet 170,000

Recent success has yielded an order for 1,100 tables. Assume direct labor costs per hour of $15.

Activity
Order, Units 1,100
Direct Materials 112,600
Machine Hours 15,300
Direct Labor Hours 5,300
Number of Purchase Orders 70
Number of Material Moves 850
Number of Machine Setups 100
Number of Inspections 400
Number of Square Feet Occupied 7,000

Determine how much the job would cost given the following activities: Do not round intermediate computations and round final answers to nearest whole number.

Cost Assigned
Direct Materials $
Direct Labor
Number of Material Moves
Number of Machine Setups
Number of Inspections
Number of Square Feet Occupied
Total Order Cost $

Custom's makes two types of hats: polyester (poly) and silk. There are two cost pools: setup, with an estimated $100,000 in overhead, and inspection, with $25,000 in overhead. Poly is estimated to have 750,000 setups and 150,000 inspections, while silk has 260,000 setups and 70,000 inspections. How much overhead is applied to each product?

Activity Rate Applied
to Poly		 Applied
to Silk
Setup $0.08 $ $
Inspection 0.08
Total $ $

Solutions

Expert Solution

Activity Amount Cost Pool Cost driver Rate 1,100 tables 1,100 tables
Purchasing $ 88,000 Orders 800 110.00 70       7,700.00
Handling Materials $ 33,500 Material Moves 1340    25.00 850     21,250.00
Machine Setups $ 75,200 Machines Setups 16000       4.70 100          470.00
Inspections $ 30,000 Number of Inspections 6000       5.00 400       2,000.00
Utilities $ 42,500 Square Feet 170000       0.25 7000       1,750.00
$ 269,200 $ 33,170
Direct Material        112,600
Direct Labor          79,500
Material Moves          21,250
Machines Setups                470
Number of Inspections            2,000
Square Feet            1,750
Total Order Cost        217,570
Direct Material        112,600
Direct Labor          79,500
Material Moves          21,250
Machines Setups                470
Number of Inspections            2,000
Square Feet            1,750
Orders       7,700.00
Total Order Cost        225,270
Activity Overhead Total Activity Activity Poly Applied to Poly Activity Silk Applied to Silk
Setup 100,000.00 1,010,000.00 750,000.00          74,257.43 260,000.00        25,742.57
Inspection    25,000.00     220,000.00 150,000.00          17,045.45    70,000.00          7,954.55
Activity Rate Activity Poly Applied to Poly Activity Silk Applied to Silk
Setup 0.08 750000 60000 260000 20800
Inspection 0.08 150000 12000 70000 5600

ekkarill92 answered 2 years ago
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