Company uses a volume-based costing system that applies overhead cost based on m

Question

Company uses a volume-based costing system that applies overhead cost based on machine hours at $20 per machine hour. The company is considering adopting an activity-based costing system with the following data Cost Driver Rate $1.50 1.00 8.00 0.40 15.00 Materials handling Lathe work Pounds of material Number of parts Number of machine hours Number of turns Number of units tested Grinding Testing The two jobs processed in the month of May had the following characteristics: Job A Job B Direct material Direct labor Pounds of material Number of parts Number of turns Number of machine hours Number of units in each job 18,000 $ 60,000 6,000 $ 12,000 900 3,000 450 1,500 0,000 40,000 375 800 80 200 All units tested 1. Using ABC, the cost per unit for Job A is $325.90 b. $125.00 c $425.00 d. $300.00 -2. Using ABC, the cost per unit for Job B is: a. $157.00 b. $385.90 C. $360.00 d. $517.00 3. The difference in total cost between ABC and the volume-based costing system for Job A is: a. $18,400 C. d. $425 $2,500 $15,400

Explanation / Answer

1) Answer (C) $425

Calculation :

The cost per unit for Job A = ($18,000 + $6,000 + (900*1.50) + (450*1) + (10,000*0.40) + (375*8) + (80*15)) / 80

= $34,000 / 80

= $425

2) Answer (D) $517

Calculation :

The cost per unit for Job B = ($60,000 +$12,000 + (3,000*1.5) + (1,500*1) + (40,000*0.40) + (800*8) +(200*15))/200

= $103,400 / 200

= $517

3) Answer (C) $2,500

Calculation :

Cost for Job A as per volume based system = 18,000 + 6,000 + (375 * 20)

= 31,500

Cost of Job A as per ABC = $34,000

Difference = $34,000 - $31,500

= $2,500

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