Question

Oxnard Company uses a volume-based costing system that applies overhead cost based on machine hours at $25 per machine hour.

The company is considering adopting an activity-based costing system with the following data:

Activity	Cost Driver	Rate
Materials handling	Pounds of material	$1.50
Lathe work	Number of parts	$1.00
Milling	Number of machine hours	$8.00
Grinding	Number of turns	$0.40
Testing	Number of units tested	$15.00

The two jobs processed in the month of May had the following characteristics:

	Job A	Job B
Direct material	$18,400	$60,600
Direct labor	$6,000	$12,000
Pounds of material	900	3,000
Number of parts	450	1,500
Number of turns	10,000	40,000
Number of machine hours	375	800
Number of units in each job	80	200

All units tested.

Q. The difference in total cost between ABC and the volume-based costing system for Job B is:

Group of answer choices

$11,400

$20,000

$5,000

$69,600

Answer 1

Answer - $11,400

Calculation:

Total Cost for Job B ads per Volume-Based Costing System =

Direct Material + Direct Labor + Overhead Cost

= 60,600 + 12,000 + (800 * 25)

= $92,600

Total Cost for Job B as per Activity Based Costing System:

Statement showing computation of Total Cost of Job B as per ABC System

	Cost Driver (including figure)	Rate ($)	Amount ($)
Direct Material Direct Labor Materials Handling Lathe Work Milling Grinding Testing	- - Pounds of Material (3000) Number of Parts (1500) Number of Machine Hours (800) Number of Turns (40000) Number of Units Tested (200*)	- - 1.50 1.00 8.00 0.40 15.00	60,600 12,000 4,500 1,500 6,400 16,000 3,000
Total Cost	-	-	$104,000

* Since all units are tested, number of units tested will be equal to number of units in the job. Number of units in the job = 200 units

Difference = 104,000 - 92,600

= $11,400