In: Accounting
After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.
Activity Cost Driver
Setting up machines $24,940 29 batches
Inspecting components $ 5,200 5,200 parts
Providing utilities $10,400 5,200 machine hours
Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615.
Direct materials $2,400
Direct labor $3,100
Batches 3 batches
Number of parts 450 parts
Machine hours 570 machine hours
Required:
A: Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
Setting up machines, Inspecting components and providing utilities
B: What is the total cost of Job 615 if Business Solutions applies overhead at 50% of direct labor cost?
C: What is the total cost of Job 615 if Business Solutions uses activity-based costing? Total manufacturing cost $9,670 4.
Note: Please solve the problem completely with details that I can practice and learn. Thank you.
A.Classification:
Activity |
Type |
Reason |
Setting up machines |
Batch level |
Once setup, it produces a batch |
Inspecting components |
Product Level |
Each product to be inspected |
Providing utilities |
Facility Level |
Based on Machine Hours |
B. Calculation of Total Cost of Job 615:
Direct Materials |
2,400 |
Direct Labor |
3,100 |
Overheads @ 50% of Labor Cost |
1,550 |
Total Cost |
$7,050 |
C. Cost Allocation Sheet
Overhead |
Amount |
Basis |
Rate per Activity |
Setting up machines |
24,940 |
29 Batches |
860 |
Inspecting components |
5,200 |
5,200 parts |
1 |
Providing utilities |
10,400 |
5,200 machine hours |
2 |
Calculation of Total Cost of Job 615:
Direct Materials |
2,400 |
Direct Labor |
3,100 |
Overheads: |
|
Setting up Machine 3*860 |
2,580 |
Inspection 1*450 |
450 |
Utilities 2*570 |
1,140 |
Total Cost |
$9,670 |