Activity-Based Costing: Cost Flows through T-Accounts Hill Fashions, a shirt manufacturer, recently switched to activity-based costing from the department product costing method. The manager of Building S, which manufactures the shirts, has identified the following cost drivers and rates:

Direct materials costs were $200,000, and direct labor costs were $100,000 during October when Building S handled 40,000 yards of materials, made 800 inspections, had 100 setups, and ran the machines for 20,000 hours.

Required Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory. Use the accounts Materials Inventory, Wages Payable, Work-in-Process Inventory, Finished Goods Inventory, and four overhead applied accounts.

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Activity Centers Materials handling Quality inspections.. Machine setups Running machines Cost Drivers Yards of material handled Number of inspections Number of machine setups Number of machine-hours Rate per Cost Driver Unit $1 per yard $100 per inspection $800 per setup $10 per hour