The job costing system at Sharon's Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 15 intricate personalized frames, and Job 325, an order of 5 standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly designed activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows. (Click the icon to view the cost and driver data.) (Click the icon to view the job data.) Read the requirements Requirement 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. Begin by calculating the overhead rate under the simple costing system. First select the formula, then enter the applicable amounts and calculate the rate. (Round your answer to the nearest cent. Abbreviations used: bgt. = budgeted, mach. = machine, mat. = material, purch. = purchase, qty = quantity.) Budgeted overhead rate Simple costing system Now calculate the total overhead allocated to each job under a simple costing system. (Round your answer to the nearest cent.) Simple costing system Job 215 Job 325 Indirect cost allocated Requirement 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. (Round the allocation rates to three decimal places, X.XXX. Abbreviations used: bgt. = budgeted, mach. = machine, maint. = maintenance, mat. = material, purch. = purchase, aty. = quantity, prod. = produced.) ABC allocation rate Purchasing + Mat, handling + = Mach, maint. + Inspection + Packaging Now calculate the total overhead allocated to Job 215 and Job 325 under an activity-based costing system. (Round interim calculations to three decimal places and your final answers to the nearest cent.) ABC costing system Job 215 Job 325 Overhead costs allocated: Purchasing Materials handling Machine maintenance Inspection Packaging Total costs Requirement 3. Explain why Sharon's Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process. (Select all choices that apply.) A. The ABC job-costing system will always result in a lower allocation of overhead costs to jobs than the simple job-costing system. B. Implementing an ABC costing system will be less complex than a simple job-costing system. OC. Marketing managers can use ABC information to bid for jobs more competitively because ABC provides managers with a more accurate reflection of the resources used for and the costs of each job. D. The manufacturing manager likely would find the ABC job-costing system more useful in cost management. Unlike direct manufacturing labor costs, the five indirect cost pools are systematically linked to the activity areas at the plant. The result is more accurate product costing. The manufacturing manager can seek to reduce both the level of activity (fewer purchase orders, less material handling) and the cost of each activity (such as the cost per inspection). - Data Table Budgeted Overhead Activity Driver $ 28,900 Purchased orders processed Budgeted Quantity of Activity Driver 1,700 5,100 10,000 45,900 Purchasing Material handling Machine maintenance Product inspection Packaging Material moves 140,000 Machine-hours 8,400 Inspections 1,200 9,300 Units produced 3,100 $ 232,500 Total More Info Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 Job 325 Number of purchase orders 21 6 16 2 Number of material moves Machine-hours 20 80 Number of inspections 9 2 Units produced 15 5
