Part II. Plantwide and Activity Based Costing BRS Industries manufactures custom
ID: 2547842 • Letter: P
Question
Part II. Plantwide and Activity Based Costing BRS Industries manufactures custom lightweight motorbikes. The current cost accounting system uses machine hours to allocate manufacturing overhead to each job. BRS estimates that in the coming year it will incur $750,000 in manufacturing overhead costs and use 10,000 machine hours. Depending on the specifications requested by the customer, the bike may use hazardous chemicals that incur greater disposal costs. BRS's traditional accounting system includes the cost of hazardous waste disposal in with total manufacturing overhead. BRS is planning to implement an activity based costing system to more accurately assign hazardous waste disposal costs to each job Expected usage and costs for manufacturing overhead are as follows: Cost Pool Description Cost Machine maintenance costs Engincering costs Hazardous waste disposal Cost Driver Usage 10,000 750 700 Pool Cost Driver $250,000 $150,000 350,000 $750,000 Number of machine hours Number of change orders Gallons of hazardous waste Costs e costs The following information relates to Motorbike #633, which was started and completed during they 40 2 15 $55 Machine hours used: Direct Material cost per pound: Pounds of Direct Materials used on job: Direct Labor cost per hour: Direct Labor Hours used: Change orders: Gallons of hazardous waste: 170 $20 45 BRS prices its bikes at 140% of total manufacturing costs. Requirements: 1. What is the plantwide overhead rate? Calculate the total cost of Motorbike #633 using BRS's current method of allocating m overhead based on a plantwide rateExplanation / Answer
Answer 1. Predetermined Overhead Rate = Estimated Overhead / Estimated Allocation Base Predetermined Overhead Rate = $750,000 / 10,000 Mach Hrs Predetermined Overhead Rate = $75 per Mach hr Answer 2. Calculation of Total Cost Amount Direct Materials - 170 pounds X $55 9,350.00 Direct Labor - $20 X 45 Hours 900.00 Overhead Cost - $75 X 40 Mach hrs 3,000.00 Total Cost 13,250.00 Answer 3. ABC Costing Activity Overhead Cost Driver Quantity Activity Rate Indirect Costs Machine Maintenance Costs 250,000 10,000 mach hrs 25.00 per MH Engineering Costs 150,000 750 change orders 200.00 per change order Hazardous Waste Disposal 350,000 700 gallon 500.00 per gallon Total 750,000 Answer 4. Calculation of Total Cost - Under ABC Costing Amount Direct Materials - 170 pounds X $55 9,350.00 Direct Labor - $20 X 45 Hours 900.00 Overhead Cost: Machine Maintenance Costs - $25 X 40 mach hrs 1,000.00 Engineering Costs - $200 X 2 change orders 400.00 Hazardous Waste Disposal - $500 X 15 gallons 7,500.00 Total Cost 19,150.00 Answer 5. Current Costing Sytem ABC Costing Difference Selling Price - 140% of Total Cost 18,550 26,810 8,260 Total Cost 13,250 19,150 5,900 Gross Margin 5,300 7,660 2,360