In: Accounting
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.
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 |