Villegas Corporation has been using normal costing based on direct labor cost. In an attempt to better understand their costs, they conducted an activity study and identified the following overhead costs and drives for the coming year:

Overhead Item Cost Driver Budgeted Cost Budgeted Activity Level Machine Setup Number of Setups $ 20,000 200 Inspection Number of Inspections $ 130,000 6,500 Material Handling Number of Material Moves $ 80,000 8,000 Engineering Engineering Hours $ 50,000 1,000 Total $ 280,000

The following information was collected on three jobs taht were completed during the year: Job 101 Job 102 Job 103 Direct Materials $ 5,000 $ 12,000 $ 8,000 Direct Labor $ 2,000 $ 2,000 $ 4,000 Units Completed 100 50 200 Number of Setups 1 2 4 Number of Inspections 20 10 30 Number of Material Moves 30 10 50 Engineering Hours 10 50 10

Budgeted direct labor cost was $100,000 and budgeted direct material cost was $300,000

1) Using normal costing, the cost of Job 103 would be...

2) Using activity based costing, the cost of Job 103 would be...

3) Frank Aquilino, president of Villegas Corporation is concerned that his current system may not have been given them useful cost information and has head that Job 103 was miscosted. He asks "what the heck is going on here?" With respoect to Job 103, was the job overcosted or undercosted under their current normal costing procedure? Frank also needs an explanation as to why this is occuring. Specificially, for Job 103, WHY was this inaccurately costed? Explain to Frank what is going on that is causing this?

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