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
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, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.
Activity | Cost | Driver | |||
Setting up machinfes | $ | 18,040 | 22 | batches | |
Inspecting components | $ | 5,100 | 5,100 | parts | |
Providing utilities | $ | 10,200 | 5,100 | machine hours | |
Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615.
Direct materials | $ | 2,700 | |
Direct labor | $ | 3,100 | |
Batches | 4 | batches | |
Number of parts | 570 | parts | |
Machine hours | 660 | machine hours | |
Required: 1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
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2. What is the total cost of Job 615 if Business Solutions applies overhead at 50% of direct labor cost?
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3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?
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