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, Santana found that setup costs, inspection costs,
and utility costs made up most of its overhead. Additional
information about overhead follows.
|Setting up machinfes||$||24,030||27||batches|
|Providing utilities||$||9,600||4,800||machine hours|
Overhead has been applied to output at a rate of 55% of direct labor costs. The following data pertain to Job 615.
|Number of parts||500||parts|
|Machine hours||610||machine hours|
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
2. What is the total cost of Job 615 if Business Solutions applies overhead at 55% of direct labor cost?
3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?
|Total manufacturing cost|
|setting upmachines||Batch level|
|Inspecting components||unit level|
|providing utilites||Facility cost|
Total cost =direct material +direct labor + overhead
= 2100+3500+ (3500 * 55%]
=2100 +3500 +1925
= $ 7525
|Activity rates||OVEerhead allocated|
|setting machines||24030/27=890 per batch||890*5=4450|
|Inspecting components||4800/4800 =$ 1 per parts||1*500=500|
|providing utilities||9600/4800=$ 2per MH||2*610=1220|
Total cost:2100+3500+6170= 11770
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