Question

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, Rey 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	$	18,060	21 batches
Inspecting components	$	4,100	4,100 parts
Providing utilities	$	11,000	5,500 machine hours

Overhead has been applied to output at a rate of 45% of direct labor costs. The following data pertain to Job 6.15.

Direct materials	$	1,900		Number of parts	410 parts
Direct labor	$	2,800		Machine hours	610 machine hours
Batches	3 batches

Required:

1.	What is the total cost of Job 6.15 if Business Solutions applies overhead at 45% of direct labor cost? (Omit the "$" sign in your response.)

Total cost

$

2.	What is the total cost of Job 6.15 if Business Solutions uses activity-based costing? (Do not round your intermediate calculations. Omit the "$" sign in your response.)

Total cost

$

Answer 1

1) Calculate total cost of Job 6.15 if Business Solutions applies overhead at 45% of direct labor cost

	Job 6.15
Direct material	1900
Direct labour	2800
Overhead (2800*45%)	1260
Total cost	5960

Calculate the total cost of Job 6.15 if Business Solutions uses activity-based costing

	Job 6.15
Direct material	1900
Direct labour	2800
Setting up machines (18060/21*3)	2580
Inspecting components (4100/4100*410)	410
Providing utilities (11000/5500*610)	1220
Total cost	8910