Benedict Industries manufactures a variety of custom widgets. The company has traditionally used a plant wide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $790,000 in total manufacturing overhead costs in the upcoming year and will use 10,000 machine hours.
Up to this point, hazardous waste disposal fees have been absorbed into the plant wide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process. Recently the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products and, as a result, profit margins on all products have been negatively impacted. Company management wants to implement an activity-based costing system so that managers know the cost of each product, including its hazard waste disposal costs. Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows:

During the year, Job 356 is started and completed. Usage data for this job follows:
150 pounds of direct material at $75 per pound
50 direct labor hours used at $20 per labor hour
110 machine hours used
6 change orders
73 pounds of hazardous waste generated
Requirements
1. Calculate the cost of Job 356 using the traditional plant wide manufacturing overhead rate based on machine hours.
2. Calculate the cost of Job 356 using activity-based costing.
3. If you were a manager, which cost estimate would provide you more useful information?
How might you use this information

Transcribed Image Text:

Description of cost pool Machine maintenance costs Engineering change Estimated activity for the year Estimated cost Cost driver 350,000 Number of $100,000 Number of 10,000 1,000 2,000 machine hours orders change orders Hazardous waste disposa $400,000 Pounds of hazardous mate- rial generated Total overhead cost