Question

Part 1
XYZ company manufactures chemicals used in radiological imaging systems. The company had originally used machine hours as the cost driver to develop one predetermined overhead rate.
You have been recently hired by this company to review the costing of chemicals and realize that maybe a predetermined overhead rate does not give an accurate cost picture.
You remember discussing overhead cost issues in MBA641 and want to implement ABC, so you have done some research and come up with the following activity cost pools and cost drivers.
Activity cost Pool	Budgeted Overhead Cost	Cost driver	Budgeted Level for cost Driver	Activity Pool Rate
Material handling	$     30,000	Weight of raw materials in pounds	30,000	$1.00
Quality Assurance	$     20,000	Number of quality checks	1,000	$20.00
Hazardous waste control	$   100,000	Weight of hazardous chemical used in pounds	8,000	$12.50
Other overhead costs	$   300,000	Machine hours	150,000	$2.00
Total Budgeted overhead cost	$450,000

3. An order for a special chemical mix has the following production requirements:
Material handling	3000	pounds
Quality Assurance	10	inspections
Hazardous waste control	200	pounds
Other overhead costs	700	machine hours

If the company is using the ABC method, what is the overhead cost for this order?
Material handling
Quality Assurance
Hazardous waste control
Other overhead costs
Total Overhead cost of this order using ABC

Answer 1

To calculate total overhead cost for this order, the activity consumption of this order needs to be multiplied with the respective cost driver rate. The calculation is shown as follows:

For any other clarifications, please comment