After reading an article about activity-based costing in a trade journal for the
ID: 2513615 • 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 40% 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 40% 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 material + Direct Labor + Overhead
= $ 2,500 + $ 3,400 + ( $ 3,400 *40%)
= $ 7,260
Hence the correct answer is 7,260
2.
The correct answer is 9,640
Note
1.
2. Total Cost:
Activity Cost Driver Activity Rate ( Cost / Total Drivers) Activity Cost Allocated ( Activity rate * Activity) Setting up machines $ 16,280 22 batches 740.00 3.00 2,220.0 Inspecting components $ 4,400 4,400 parts 1.00 400.00 400.0 Providing utilities $ 11,200 5,600 machine hours 2.00 560.00 1,120.0 3,740.0