Question
Orient Corporation manufactures auto parts for various automakers. In the past, Orient has been using a traditional overhead allocation system based solely on machine hours.
Orient Corporation manufactures auto parts for various automakers. In the past, Orient has been using a traditional overhead allocation system based solely on machine hours. Sensing that this system was distorting costs and selling prices, Orient has decided to switch to an activity-based costing system using three activity cost pools. Information on these activity cost pools are as follows:
Activity Cost Pool | Total Cost | Total Activity |
Labor Related | $72,000 | 10,000 Direct labor hours |
Machine Related | $180,000 | 16,000 Machine Hours |
Quality Control | $18,000 | 900 Inspections |
Orient has received an order and will complete as Job #400 and expect to incur $1,200 of direct material, 40 hours of direct labor at $32 per hour, 80 machine hours, and 10 inspections. Orient needs a markup of 30% on the job. Required: A). Calculate the activity rates and compute the expected cost of job#400 under the activity-based costing system? What should be the quote on this job? B). Relative to the activity-based costing system, would Job #400 have been overcoated or undercoated under the traditional system and by how much?
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