Question

Calculating Activity-Based Costing Overhead Rates

Assume that manufacturing overhead for Goldratt Company consisted of the following activities and costs:

Setup (1,000 setup hours)	$118,000
Production scheduling (400 batches)	60,000
Production engineering (60 change orders)	150,000
Supervision (2,000 direct labor hours)	46,000
Machine maintenance (12,000 machine hours)	60,000
Total activity costs	$434,000

The following additional data were provided for Job 845:

Direct materials costs	$7,000
Direct labor cost (5 Milling direct labor hours;35 Finishing direct labor hours)	$1,000
Setup hours	5 hours
Production scheduling	1 batch
Machine hours used (25 Milling machine hours;5 Finishing machine hours)	30 hours
Production engineering	3 change orders

(a) Calculate the cost per unit of activity driver for each activity cost category.
Setup
$Answer

Production scheduling
$Answer
Production engineering
$Answer
Supervision
$Answer
Machine maintenance
$Answer

(b) Calculate the cost of Job 845 using ABC to assign the overhead costs.
$Answer

(c) Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours. (Round your answer to the nearest dollar.)
$Answer

(d) Calculate the cost of Job 845 using a machine hour departmental overhead rate for the Milling Department ($32 per hour) and a direct hour overhead rate for the Finishing Department ($102 per hour). (Round your answer to the nearest dollar.)
$Answer

Answer 1

A.

Setup =$118,000/1,000 =$118

Production scheduling =$60,000/400 =$150

Production engineering =$150,000/60 =$2,500

Supervision =$46,000/2,000 =$23

Machine maintenance =$60,000/12,000 =$5

B.

Cost of job 845

Direct materials	$7,000
Direct labor	$1,000
Overhead:
Setup ($118×5)	$590
Production scheduling (1×$150)	$150
Production engineering (3×$2,500)	$7,500
Supervision (40×$23)	$920
Machine maintenance (30×$5)	$150
Total job cost	$17,310

C.

Plantwide overhead rate =$434,000/12,000 =$36.16667

Cost of job 845

Direct materials	$7,000
Direct labor	$1,000
Overhead(30×$36.16667)	$1,085
Total job cost	$9,085

D.

Direct materials	$7,000
Direct labor	$1,000
Overhead
Milling department (25×$32)	$800
Finishing department (35×$102)	$3,570
Total job cost	$12,370