Scofield Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $2,530,000 in total manufacturing overhead costs in the upcoming year and will use

10,000 machine hours. Up to this point, hazardous waste disposal fees have been absorbed into the plantwide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process. Recently, the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products, and as a result, profit margins on all products have been negatively impacted. Company management wants to implement an activity-based costing system so that managers know the cost of each product, including its hazardous waste disposal costs.

Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows:

Description of Cost Pool	Estimated Cost	Cost Driver	Estimated Activity for this Year
Machine maintenance costs	$700,000	# of machines	10,000
engineering change orders	$300,000	# of change orders	6,000
hazardous waste disposal	$1,530,000	pounds of hazardous materials generated	4,500
total overhead cost	$2,530,000

During the year, Job 354 is started and completed. Usage for this job follows:

270 pounds of direct materials at $50 per pound

40 direct labor hours used at $15 per labor hour

140 machine hours used

7 change orders

80 pounds of hazardous waste generated

Read the requirements

1.	Calculate the cost of Job 354Job 354 using the traditional plantwide manufacturing overhead rate based on machine hours.
2.	Calculate the cost of Job 354Job 354 using activity-based costing.
3.	If you were a manager, which cost estimate would provide you more usefulinformation? How might you use this information?

Requirement 1. Calculate the cost of Job 356 using the traditional plantwide manufacturing overhead rate based on machine hours. Begin by calculating the plantwide overhead rate. First identify the formula used to compute the plantwide overhead rate,then compute the rate. (Abbreviations used: MOH = manufacturing overhead; mfg. = manufacturing)

/

=

Plantwide mfg. overhead rate

/

=

Calculate the cost of Job 356.

Job Cost Record	Manufacturing
JOB 356	Costs
Total job cost

Requirement 2. Calculate the cost of Job 356 using activity-based costing.

Begin by calculating the allocation rate for each activity. First determine the formula to compute the allocation rate in anactivity-based costing system, then compute the rate for each activity. (Abbreviations used: est. = estimated, MH=machinehours, Mach.=Machine, Eng.=Engineering)

					Activity cost
		/		=	allocation rate

Mach. maintenance

/

=

per MH

Eng. change orders

/

=

per order

Waste disposal

/

=

per pound

Calculate the cost of Job 356 using activity-based costing.

Job Cost Record	Manufacturing
JOB 356	Costs
Total job cost

Requirement 3. If you were a manager, which cost estimate would provide you more useful information? How might you use this information?

The cost estimate based on the activity-based costing rates traditional plantwide manufacturing overhead rate

would provide more useful information because this cost estimate takes into account the machine hours used by each product the specific resources used by each product This information can be used to