Smith produces specialized equipment..Currently the company usestradtional sytem for allocating manufacturing overhead. Overheadcosts are allocated at a rate of 5 dollars per machoine hours lastyear. Smiths CEO has heard about activity based costing and wantsto try out.
Cost Pool AMount Cost Price
Setups 30,0000 Number of setups
Equiptment 20,000 Machine hours
Inspection 50,000 Inspections
Company estimated it will perform 150 setups and 1000inspections each year and 20,000 machine hours each year
A job FWS will require 18 setups 85 machine hours and 60inspections. What amount of manufacturing Overhead will beallocated using job FWS?
What is the total cost of the job if direct material is 200 anddirect labor is 150?
What amount of manufacturing overhad would SMmith allocate tojob FWs using their traditional system?
What is the total cost if direct material is 200 and direct laoris 150?
Smith produces specialized equipment..Currently the company usestradtional sytem for allocating manufacturing overhead. Overheadcosts are allocated at a rate of 5 dollars per machoine hours lastyear. Smiths CEO has heard about activity based costing and wantsto try out.
Cost Pool AMount Cost Price
Setups 30,0000 Number of setups
Equiptment 20,000 Machine hours
Inspection 50,000 Inspections
Company estimated it will perform 150 setups and 1000inspections each year and 20,000 machine hours each year
A job FWS will require 18 setups 85 machine hours and 60inspections. What amount of manufacturing Overhead will beallocated using job FWS?
What is the total cost of the job if direct material is 200 anddirect labor is 150?
What amount of manufacturing overhad would SMmith allocate tojob FWs using their traditional system?
What is the total cost if direct material is 200 and direct laoris 150?
Related questions
AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.
For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:
Activity | Cost Driver | Allocation Rate |
Material handling | Parts handled | $0.40 |
Lathe work | No. of lathe turns | $0.20 |
Milling | Machine hours | $20.00 |
Grinding | No. of parts ground | $0.80 |
Testing | No. of units tested | $15.00 |
For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:
Job 100 | Job 200 | |
Direct materials cost | $9,700 | $59,900 |
Direct labor cost | $750 | $11,250 |
No. of direct manufacturing labor hours | 25 | 375 |
No. of parts ground | 500 | 2,000 |
No. of lathe turns | 20,000 | 60,000 |
Machine hours | 150 | 1,050 |
No. of units produced during period (all are tested) | 10 | 200 |
Required
1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.
2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.
3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).
4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?
