After reading an article about activity-based costing in a trade journal for the
ID: 2513596 • Letter: A
Question
After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.
Overhead has been applied to output at a rate of 55% of direct labor costs. The following data pertain to Job 6.15.
What is the total cost of Job 6.15 if Business Solutions applies overhead at 55% of direct labor cost? (Omit the "$" sign in your response.)
What is the total cost of Job 6.15 if Business Solutions uses activity-based costing? (Do not round your intermediate calculations. Omit the "$" sign in your response.)
After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.
Explanation / Answer
1. Total Cost = Direct Materials + Direct Labor + Overhead
= $ 2,400 +$ 3,500 + (55% *$ 3,500)
= $ 7,825
Hence the correct answer is 7,825
2.
The correct answer is 9,990
Note :
1. Total Cost = Direct Materials + Direct Labor + Overhead
= $ 2,400 +$ 3,500 + $4,090
= $ 9,990
2.Overhead:
Activity Cost Driver Activity Rate ( Cost / Total Drivers) Activity Cost Allocated ( Activity rate * Activity) Setting up machines $ 19,780 23 batches 860.00 3 2,580.0 Inspecting components $ 5,600 5,600 parts 1.00 390 390.0 Providing utilities $ 11,000 5,500 machine hours 2.00 560 1,120.0 4,090.0