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The 195 Factory produces replacement parts and assemblies for vintage Cessna air

ID: 2569474 • Letter: T

Question

The 195 Factory produces replacement parts and assemblies for vintage Cessna aircraft. The company is considering replacing its current costing system with an activity-based approach. It has identified three activities: computer-aided design; fabrication; and assembly and finishing. Data regarding these activities has been collected in the table below.



(A) What is the activity cost rate for the computer-aided design activity?

(B) Two jobs are currently complete and ready for delivery to the customer. One is a wing assembly that required raw materials costing $5,000 and consumed 40 hours of direct labor time. The wing assembly is a standard product that required only one hour of CAD time and three hours of machine time. What amount of overhead would the proposed activity-based costing system assign to this job?

Activity Driver Driver Frequency Activity Cost Computer-aided design (CAD) (CAD) hours 2,000 $1,000,000 Fabricating Machine hours 2,000 $600,000 Assembly and finishing Labor hours 8,000 $400,000

Explanation / Answer

(A) What is the activity cost rate for the computer-aided design activity?

Ans

Activity

Driver

Driver Frequency

Activity Cost

Activity rate

(A)

(B)

(C=A/B)

Computer-aided design (CAD)

(CAD) hours

2,000

$1,000,000

$500

Fabricating

Machine hours

2,000

$600,000

$300

Assembly and finishing

Labour hours

8,000

$400,000

$50

Ans

Calculation of overhead allocation based on ABC costing.

Activity

Driver

Driver Frequency

Activity rate

Activity rate

(A)

(B)

(C=A/B)

Computer-aided design (CAD)

(CAD) hours

1

$500

$500

Fabricating

Machine hours

3

$300

$900

Assembly and finishing

Labour hours

40

$50

$2,000

Total

$3,400

Ans

Total Overheads allocated based on ABC costing = $3,400

(A) What is the activity cost rate for the computer-aided design activity?

Ans

Activity

Driver

Driver Frequency

Activity Cost

Activity rate

(A)

(B)

(C=A/B)

Computer-aided design (CAD)

(CAD) hours

2,000

$1,000,000

$500

Fabricating

Machine hours

2,000

$600,000

$300

Assembly and finishing

Labour hours

8,000

$400,000

$50

Ans

Calculation of overhead allocation based on ABC costing.

Activity

Driver

Driver Frequency

Activity rate

Activity rate

(A)

(B)

(C=A/B)

Computer-aided design (CAD)

(CAD) hours

1

$500

$500

Fabricating

Machine hours

3

$300

$900

Assembly and finishing

Labour hours

40

$50

$2,000

Total

$3,400

Ans

Total Overheads allocated based on ABC costing = $3,400