Question
Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates: Activity
Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:
Activity Centers | Cost Drivers | Rate per Cost Driver Unit | ||
Materials handling | Pounds of material handled | $ | 18 | per pound |
Quality inspections | Number of inspections | $ | 230 | per inspection |
Machine setups | Number of machine setups | $ | 2,700 | per setup |
Running machines | Number of machine-hours | $ | 22.00 | per hour |
Direct materials costs were $313,000 and direct labor costs were $163,000 during July, when the Fabrication Department handled 3,700 pounds of materials, made 770 inspections, had 50 setups, and ran the machines for 15,000 hours.
Required:
Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory.
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