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Sanjay Products uses a job order cost system and activity-based costing. Sanjay is preparing two bids for jobs: Job 4742, an order for 15
Sanjay Products uses a job order cost system and activity-based costing. Sanjay is preparing two bids for jobs: Job 4742, an order for 15 intricate custom units, and job 4746, an order for 6 standard custom units. Sanjay's controller wants to compare overhead allocated under a simple job costing system to a newly designed activity-based job costing system. Total budgeted costs in each indirect cost pool and budgeted cost drivers are as follows: Activity Budgeted overhead Activity Driver Purchasing $27,250 Purchase orders processed Materials handling 15,000 Material moves Machine maintenance 3,500 Machine hours Product inspection 10,000 Inspections Packaging 4,750 Units produced Job 4742 Job 4746 Number of purchase orders Number of material moves 25 8 10 4 Machine hours Number of inspections Units produced 45 65 12 15 5 6 Budgeted quantity 2,500 4,500 25,000 1,200 4,800 Instructions: a. Compute the total overhead allocated to each job under a simple costing system, where all overhead is allocated based on machine hours. b. Compute the total overhead allocated to each job under an ABC system using the appropriate activity drivers. C. Explain why Sanjay Products might favor an ABC system over a simple costing system, especially in its bidding process.
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