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

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

Solutions

Expert Solution

OH rate per DLH:
Total Overheads (377000+721000+467000+167000) 1732000
Divide: Total DLH 32000
OH rate per DLH: 54.125
Cost of Job 491 as per traditional:
Direct material 3890
Direct labour 8400
OH applied (416 DLH @54.125) 22516
Cost of Job 491 as per traditional: 34806
Activity rate:
Activity    OH cost Drivers Rate
Mixing 377000 734000 51.36% of DMC
Machining 721000 306000 2.36 per MH
Finishing 467000 32000 14.59 per DLH
Packing 167000 71200 2.35 per ounce
OH cost allocated
Activity    Driver used Rate OH cost allocated
Mixing 3890 51.36% 1997.904
Machining 981 2.36 2315.16
Finishing 416 14.59 6069.44
Packing 52 2.35 122.2
Total OH cost 10505
Cost of Job 491 as per ABC
Direct material 3890
Direct labour 8400
OH allocated 10505
Cost of Job 491 as per ABC 22795

ekkarill92 answered 1 year ago
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