Cranest Manufacturing uses departmental cost driver rates to allocate manufacturing overhead costs to products.

Cranest is in the process of bidding on two jobs: Job 500 an order of 15 standard tables and Job 600 an order of 6 customized tables.

The CEO wants you to compare overhead allocated under simple job-costing system with one cost pool where overhead is allocated based on machine-hours and a newly-designed activity-based job-costing system, where total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follow:

Budgeted overhead

Activity Driver

Budgeted Quantity of Activity Driver

Purchasing

$105,000

Purchase orders processed

3,000

Set-up

131,250

Nb of Set-ups

7,500

Machine maintenance

355,950

Machine-hours

15,750

Product inspection

28,350

Nb of inspections

1,800

Packaging

59,850

Units produced

5,700

Information related to Job 500 and Job 600 follows

Job 215

Job 325

Purchase orders processed

25

8

Nb of Set-ups

10

4

Machine-hours

40

60

Nb of inspections

9

3

Units produced

15

6

Required:

1-Compute The total overhead allocated to each job under a simple costing system (one cost pool)

2- Compute The total overhead allocated to each job under the ABC

3-Which method do you favor? Explain why.

4-How might Cranest use the information in requirement 2 to make better decisions