Question

Kamili Company has the following three manufacturing overhead cost drivers.                               &nb

Kamili Company has the following three manufacturing overhead cost drivers.

  

                                                                                                 Overhead

   Cost Driver                 Level of Activity                                        Cost

    Design changes        100 changes per year                        $ 5,000

    Machine setups        2,000 setups per year                          18,000

    Electricity usage       12,000 kilowatt-hours per year           36,000

  

Kamili Company started and completed work on 25 different jobs during the year. One of these jobs was Job #781. Job #781 required eight design changes, 20 machine setups, and 700 kilowatt-hours of electricity. How much manufacturing overhead should be allocated to Job #781? Note: Kamili uses activity-based costing.

  • $3,080

  • $2,360

  • $2,860

  • $2,680

  • $1,550

  • $3,580

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Answer #1

Answer: $2,680

Calculations:

Overhead cost / Level of activity = Activity Rate
Design changes $ 5,000 / 100 Changes per year = $ 50 Per Design change
Machine setups $ 18,000 / 2,000 setups per year = $ 9 Per Machine setup
Electricity usage $ 36,000 / 12,000 Kilowatt-hours per year = $ 3 Per Electricity usag

.

Job # 781
Level of activity x Activity Rate = Total Cost
Design changes 8 Changes per year x $ 50 Per Design change = $ 400
Machine setups 20 setups per year x $ 9 Per Machine setup = $ 180
Electricity usage 700 Kilowatt-hours per year x $ 3 Per Electricity usag = $ 2,100
Total Allocated to Job #781 $ 2,680
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