Southwest Components recently switched to activity-based costing from the depart

Question

Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates: Rate per Cost Driver Unit Activity Centers Materials handling Quality inspections Machine setups Running machines Cost Drivers Pounds of material handled Number of inspection:s Number of machine setups Number of machine-hours S 18 per pound S 200 per inspection $2,900 per setup $20.00 per hour Direct materials costs were $307,000 and direct labor costs were $158,000 during July, when the Fabrication Department handled 3,900 pounds of materials, made 770 inspections, had 30 setups, and ran the machines for 16,000 hours. Required Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory. Materials Inventory Wages Payable Beg. bal Beg. bal End. bal End. bal. Overhead Applied: Materials Handling Overhead Applied: Quality Inspections Beg. bal Beg. bal End. bal End. bal

Explanation / Answer

Activity Center Cost Drivers Rate Per Cost Driver Material Handing Pounds per Material 18 Quality Inspections Number of Inspection 200 Machine Setups Number of Machine Setputs 2900 Running Machines Number of Machine Hours 20 Direct Material Cost 307000 Direct Labour Cost 158000 Fabrication handled 3900 Inspections 770 Setups 30 Machines 16000 Material Cost 70200 (18*3900) Labour Cost 320000 (20*16000) Machine Set Up 87000 (30*2900) Inspections 154000 (200*770)

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