The job costing system at Smiths 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 6 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.

Management Accounting: Coursework Assignment

Management Accounting_2021 January Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows:

Budgeted Overhead Activity Driver

Budgeted Quantity of Activity Driver Purchasing 70,000 Purchase orders processed 2,000 Material handling 87,500 Material moves 5,000 Machine maintenance 237,300 Machine-hours 10,500 Product inspection 18,900 Inspections 1,200 Packaging 39,900 Units produced 3,800

453,600

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 25 8 Number of material moves 10 4 Machine-hours 40 60 Number of inspections 9 3 Units produced 15 6

Required: 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours.

2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. 3. Explain why Smiths Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process.