A company has identified the folloing overhead costs and cost drivers for the co
ID: 2370840 • Letter: A
Question
A company has identified the folloing overhead costs and cost drivers for the coming year:
Overhead Item Cost Driver Budgeted Cost Budgeted Activity Level
Machine setup Number of setups $20,000 200
Inspection Number of inspections 130,000 6,500
Material handling Number of material moves 80,000 8,000
Engineering Engineering hours 50,000 1,000
Estimated direct labor cost was $100,000 and Estimated direct materials cost was $280,000. The following information was collected on three jobs that were completed during the year:
Job 101 Job 102 Job 103
Direct materialls $5,000 $12,000 $8,000
Direct labor $2,000 $2,000 $4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10
The comapny desires a mark-up of 40%. If the company uses activity based costing (ABC), the price of each unit of JOB 103 would be:
A. $98
B. $100
C. $116-This answer is incorrect
D. $140
Explanation / Answer
Machine setup Rate =20,000/200 = $100 per Setup
Inspection Rate =130,000/6,500 = $20 per Insp
Material handling Rate=80,000/8,000 = $10 Per Mat Move
Engineering Rate=50,000/1000 = $50 per ENgg Hr
Job 103:
Direct materialls $8,000
Direct labor $4,000
Units completed 200
Number of setups 4*$100 = 400
Number of inspections 30*20 = 600
Number of material moves 50*10 = 500
Engineering hours 10*50 = 500
--------------------------------
Total Cost $14000
COst pu = $14000/200 = $70
Markup 40% is 40%*70 = 28
--------------------------
So Sale Price pu = $98 ...........Ans (a)
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