Problem2 Edge has used a single plant wide rate based on machine hours for many

Question

Problem2 Edge has used a single plant wide rate based on machine hours for many years. This year they are considering changin g to activity-based costing Information Activities Purchasing Receiving Machine set-ups machining Inspections (ABC) Driver #Pos # Receiving reports # set-ups machine hours # inspections Estimated overhead Estimated cost driver Rate $80,000 60,000 100,000 120,000 40,000 $400,000 10,000 6,000 200 10,000 5,000 Job 200 has the following #Pos # Rec Reports # Set-ups # Machine hours # Inspection 12 8 2 40 5 Determine the ABC rate Determine the plant wide rate Determine the overhead applied using ABC Determine the overhead applied using the plant wide rate

Explanation / Answer

a Activities Estimated overhead Estimated cost driver Activity rate Purchasing 80000 10000 8 Receiving 60000 6000 10 Machine setups 100000 200 500 Machining 120000 10000 12 Inspections 40000 5000 8 b Plant wide rate = Estimated overhead cost/Estimated machine hours = 400000/10000 = $40 per machine hour c Activities Estimated cost driver Activity rate Overhead applied Purchasing 12 8 96 Receiving 8 10 80 Machine setups 2 500 1000 Machining 40 12 480 Inspections 5 8 40 Total 1696 d Overhead applied using plantwide rate = 40*40 = $1600

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