Question

The Green Company makes boats from wood. Job 489 is to build 40 rowboats.

Job 489 requires 1,000 pounds of wood costing $8 per pound. It requires 60 hours of direct labor costing $25 per hour.

Total cost for all jobs Total amount of activity for all jobs

Type of manufacturing overhead for the whole year for the whole year

Setup Cost $50,000 400 setups

Materials Handling 320,000 16,000 moves

Electricity 30,000 6,000 machine hours

_______

Total manufacturing overhead cost

for all jobs during the whole year $400,000

Please calculate the following if the Green Company uses activity based costing (the ABC method)::

1. The allocation rate for setup cost

2. The allocation rate for materials handling

3. The allocation rate for electricity

4. The direct materials cost of job 489

5. The direct labor cost of job 489

6. The manufacturing overhead cost applied to job 489 if job 489 requires 4 setups, 150 moves of materials, and 40 machine hours

7. The total cost of job 489

8. The cost per boat

Answer 1

1.     The allocation rate for setup cost

Answer :

allocation rate for setup cost= Total Setup Cost/ Total No of Setups

                                          =$50,000/400

                                             =$125

2.     The allocation rate for materials handling

allocation rate for materials handling= Total Material Handling Cost/No of moves

                                                         =$320,000/16,000
                                                         =$20

3.     The allocation rate for electricity

Answer:

        allocation rate for electricity= Total Electricity Cost/Machine hrs

                                                =$30,000/6,000

                                                =$5

4.     The direct materials cost of job 489

Answer:

Direct Material Cost= No of pounds x Cost per Pound

                               =$1,000 x $8.00

                              =$8,000

5.     The direct labor cost of job 489

Answer:

Direct Labor Cost= No of labor hrs required x Cost per labor hr

                             =60 hrs x $25

                              =$1,500

6.     The manufacturing overhead cost applied to job 489 if job 489 requires 4 setups, 150 moves of materials, and 40 machine hours

             

Computation of Manufacturing Cost
Particulars	Cost Driver	Rate per Cost Driver	No Cost driver	Amount
Set up Cost	Setups	$                         125.00	4	$     500.00
Material Handling Cost	Moves	$                           20.00	150	$ 3,000.00
Electricity	Machine hrs	$                             5.00	40	$     200.00
Manufacturing Overhead Cost				$ 3,700.00

7.     The total cost of job 489

Direct Material (1,000 x $8)	$     8,000.00
Direct Labor ( 60 hrs x $25)	$         150.00
Set up Cost	$         500.00
Material Handling Cost	$     3,000.00
Electricity	$         200.00
Total Cost	$   11,850.00

8. The cost per boat

Cost per boat =Total Cost/ no of boats
                           =$11,850/40

                                =$296.25