Question
In: Accounting
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 agoRelated Solutions
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 $ 15 per pound Quality
inspections Number of inspections $ 210 per inspection Machine
setups Number of machine setups $ 2,500 per setup Running machines
Number of machine-hours $ 21.00 per hour Direct materials costs
were $297,000 and direct labor costs...
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
$
19
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
$
24.00
per hour
Direct materials costs were $285,000 and direct labor costs...
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
$
20
per pound
Quality inspections
Number of inspections
$
220
per inspection
Machine setups
Number of machine setups
$
2,600
per setup
Running machines
Number of machine-hours
$
21.00
per hour
Direct materials costs were $281,000 and direct labor costs...
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
$
17
per pound
Quality
inspections
Number of
inspections
$
230
per
inspection
Machine
setups
Number of
machine setups
$
2,900
per setup
Running
machines
Number of
machine-hours
$
21.00
per hour
Direct materials costs were $283,000 and direct labor costs...
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Quality inspections Number of inspections $ 120 per inspection
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Catalina Sails makes sails for small sailboats. It recently
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sails, has identified the following cost drivers and rates for
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over/under allocation of overheads between products.
Differentiate between traditional cost allocation methods and activity-based costing.
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Rusties Company recently implemented an activity-based costing system.
Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:
Activity Cost Pool
Activity Measure
ExpectedOverhead Cost
ExpectedActivity
Labor-related
Direct labor-hours
$
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2,076
DLHs
Purchase orders
Number of orders
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Number of tests
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$
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10,500
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