Question

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 were $136,000 during July, when the Fabrication Department handled 4,000 pounds of materials, made 710 inspections, had 40 setups, and ran the machines for 15,000 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.

Answer 1

	Materials inventory				Wages payable
Beg bal					beg bal
		281,000	WIP				136,000	WIP
End bal		281,000			End bal		151,000
overhead Applied:Materials handling					overhead applied:Quality inspections
beg.bal					Beg.bal
		80000					156200
end bal		80,000			End bal		156,200
overhead applied :Machine setups					overhead applied:Running Machines
beg.bal					Beg.bal
		104000					315000
end bal		104,000			End bal		315,000
Work in process inventory					Finished goods inventory
Beg bal	0				beg.bal	0
direct mat	281,000	1,072,200	finished goods		WIP	1,072,200
dir labor	136,000
mat handing	80,000
quality inp	156,200
mac setup	104,000
running ma	315,000
end balc	0				End bal	1,072,200