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Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager...

Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:

Activity Centers Cost Drivers Rate per
Cost Driver Unit
Materials handling Pounds of material handled $ 18 per pound
Quality inspections Number of inspections $ 220 per inspection
Machine setups Number of machine setups $ 2,900 per setup
Running machines Number of machine-hours $ 25.00 per hour

Direct materials costs were $287,000 and direct labor costs were $146,000 during July, when the Fabrication Department handled 3,600 pounds of materials, made 780 inspections, had 30 setups, and ran the machines for 14,000 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.

Solutions

Expert Solution

Raw material
Explanation Debit Explanation Credit
Bal (assumed) 0 0
Work in process 287000
Wages
Explanation Debit Credit
Bal (assumed) 0
Work in process 146000
Overhead applied-Materials handling
Explanation Debit Credit
Bal (assumed) 0 Work in process
(3600*18) 64800
Overhead applied-Quality inspections
Explanation Debit Credit
Bal (assumed) 0 Work in process
(780*220) 171600
Overhead applied-Machine setups
Explanation Debit Credit
Bal (assumed) 0 Work in process
(2900*30) 87000
Overhead applied-Running machines
Explanation Debit Credit
Bal (assumed) 0 Work in process
(14000*25) 350000
Work in process
Explanation Debit Credit
Bal (assumed) 0
Raw material 287000
Wages 146000
Overhead applied-Materials handling 64800
Overhead applied-Quality inspections 171600
Overhead applied-Machine setups 87000
Overhead applied-Running machines 350000 Finished goods 1106400
1106400 1106400
Finished goods
Explanation Debit Credit
Bal (assumed) 0
Work in process 1106400 Bal 11064000
1106400

ekkarill92 answered 1 year ago
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