Midtown Inc. uses an activity based costing system contains the following six ac
ID: 2449896 • Letter: M
Question
Midtown Inc. uses an activity based costing system contains the following six activity cost pools:
Activity Cost Pool
Estimated Overhead Costs
Estimated Activity
Indirect Labor
$ 1,100,000
100,000
Direct Labor Hours
Machine processing
120,000
40,000
Machine Hours
Machine setups
675,000
15,000
Setups
Production orders
1,350,000
9,000
Orders
Shipments
1,470,000
12,250
Shipments
Product Testing
405,000
450
Products
Total:
$ 5,120,000
Activity data have been supplied for the following two jobs:
JOB 485
JOB 486
Number of units produced
400
950
Direct Labor Hours
850
700
Machine Hours
1,475
1300
Setups
5
2
Orders
8
3
Shipments
14
1
Products
2
2
Required:
Calculate the activity rates for each of the pools.
Determine the amount of overhead to be allocated to each job.
Calculate the amount
Activity Cost Pool
Estimated Overhead Costs
Estimated Activity
Indirect Labor
$ 1,100,000
100,000
Direct Labor Hours
Machine processing
120,000
40,000
Machine Hours
Machine setups
675,000
15,000
Setups
Production orders
1,350,000
9,000
Orders
Shipments
1,470,000
12,250
Shipments
Product Testing
405,000
450
Products
Total:
$ 5,120,000
Explanation / Answer
Activity Cost Pool Estimated Overhead Costs Estimated Activity Rate/Pool Indirect Labor $1,100,000.00 100000 Direct Labor Hours 11 Machine processing $ 120,000.00 40000 Machine Hours 3 Machine setups $ 675,000.00 15000 Setups 45 Production orders $ 135,000.00 9000 Orders 15 Shipments $1,470,000.00 12250 Shipments 120 Product Testing $ 405,000.00 450 Products 900 Total: $3,905,000.00 Formula used: Estimated overhead /estimated Activity Job485 Job486 Cost Pool Amount Cost pool Amount Direct Labour 850 9350 700 7700 Machine Processing 1475 4425 1300 3900 Machine setups 5 225 2 90 Production orders 8 120 3 45 Shipments 14 1680 1 120 Product Testing 2 1800 2 1800 Cost is calculated: No of Pool x corresponding rate per pool.