Calculating Activity-Based Costing Overhead Rates Assume that manufacturing over
ID: 2415863 • Letter: C
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) $150,000 Production scheduling (400 batches) 80,000 Production engineering (60 change orders) 60,000 Supervision (2,000 direct labor hours) 66,000 Machine maintenance (12,000 machine hours) 48,000 Total activity costs $404,000
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 $
Production scheduling $
Production engineering $
Supervision$
Machine maintenance
(b) Calculate the cost of Job 845 using ABC to assign the overhead costs. $
(c) Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours. (Round your answer to the nearest dollar.)
(d) To adequately evaluate the price and profitability of Job 845, all of the following additional costs should be considered, except:
Cost of providing service to the customer after the sale and delivery of the job.
Shipping and distribution costs. All of the above should be considered.
The impact of nonmanufacturing costs. The cost of operating the corporate jet.
Explanation / Answer
(a)
Calculation of cost per unit of activity driver:
Cost Pool
Total Cost
Total Actvity
Cost Per Unit of Activity
A
B
A/B
Setup
$ 150,000.00
1000
Setup Hours
$ 150.00
Production scheduling
$ 80,000.00
400
Batches
$ 200.00
Production engineering
$ 60,000.00
60
Change Orders
$ 1,000.00
Supervision
$ 66,000.00
2000
Direct Labor hours
$ 33.00
Machine maintenance
$ 48,000.00
12000
Machine Hours
$ 4.00
$ 404,000.00
(b)
Calculation of cost of Job 845:
Calculation of Overhead costs Using ABC:
Cost Pool
Cost Per Unit of Activity
Activity
Overhead Cost
A
B
A*B
Setup
$ 150.00
5
Setup Hours
$ 750.00
Production scheduling
$ 200.00
1
Batches
$ 200.00
Production engineering
$ 1,000.00
3
Change Orders
$ 3,000.00
Supervision
$ 33.00
40
Direct Labor hours
$ 1,320.00
Machine maintenance
$ 4.00
30
Machine Hours
$ 120.00
Total Overhead cost for the Job
$ 5,390.00
Calculation of Total Cost of Job:
Direct materials costs
$ 7,000.00
Add: Direct labor cost
$ 1,000.00
Add: Overhead Costs
$ 5,390.00
Total Cost of Job 845
$ 13,390.00
(c)
Calculation of cost of Job 845:
Calculation of Overhead costs Planwide Overhead rate :
Total Plant Overhead Costs (A)
$ 404,000.00
Total Machine hours (B)
12,000
Plantwide Overhead rate per Machine Hour = A/B
$ 33.67
Calculation of Total Cost of Job:
Direct materials costs
$ 7,000.00
Add: Direct labor cost
$ 1,000.00
Add: Overhead Costs = 30 Machine Hours * $33.67
$ 1,010.00
Total Cost of Job 845
$ 9,010.00
(d)
To adequately evaluate the price and profitability of Job 845, all of the following additional costs should be considered, except:
All of the above should be considered.
(a)
Calculation of cost per unit of activity driver:
Cost Pool
Total Cost
Total Actvity
Cost Per Unit of Activity
A
B
A/B
Setup
$ 150,000.00
1000
Setup Hours
$ 150.00
Production scheduling
$ 80,000.00
400
Batches
$ 200.00
Production engineering
$ 60,000.00
60
Change Orders
$ 1,000.00
Supervision
$ 66,000.00
2000
Direct Labor hours
$ 33.00
Machine maintenance
$ 48,000.00
12000
Machine Hours
$ 4.00
$ 404,000.00
(b)
Calculation of cost of Job 845:
Calculation of Overhead costs Using ABC:
Cost Pool
Cost Per Unit of Activity
Activity
Overhead Cost
A
B
A*B
Setup
$ 150.00
5
Setup Hours
$ 750.00
Production scheduling
$ 200.00
1
Batches
$ 200.00
Production engineering
$ 1,000.00
3
Change Orders
$ 3,000.00
Supervision
$ 33.00
40
Direct Labor hours
$ 1,320.00
Machine maintenance
$ 4.00
30
Machine Hours
$ 120.00
Total Overhead cost for the Job
$ 5,390.00
Calculation of Total Cost of Job:
Direct materials costs
$ 7,000.00
Add: Direct labor cost
$ 1,000.00
Add: Overhead Costs
$ 5,390.00
Total Cost of Job 845
$ 13,390.00
(c)
Calculation of cost of Job 845:
Calculation of Overhead costs Planwide Overhead rate :
Total Plant Overhead Costs (A)
$ 404,000.00
Total Machine hours (B)
12,000
Plantwide Overhead rate per Machine Hour = A/B
$ 33.67
Calculation of Total Cost of Job:
Direct materials costs
$ 7,000.00
Add: Direct labor cost
$ 1,000.00
Add: Overhead Costs = 30 Machine Hours * $33.67
$ 1,010.00
Total Cost of Job 845
$ 9,010.00
(d)
To adequately evaluate the price and profitability of Job 845, all of the following additional costs should be considered, except:
All of the above should be considered.
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