1. SIP Inc. (SIP) is plastic injection molding company specializing in front-end grilles. Bilchew Numbers wants to look at using an activity-based costing system. For 2021, he estimated overhead costs of $12,560,000 to be allocated using an activity-based costing system (see the table below). Bilchew also estimated that direct labour will be paid at the rate of $15 per hour. Activity Cost Pool Estimated Cost Cost Driver (allocation base) Total Quantity of Allocation Base Indirect materials $ 1,450,000 Direct materials $6,590,910 Indirect labour and 2,000,000 Direct labour 100,000 hours supervision Utilities 3,598,000 Power 20,000 kilowatt-hours (kWh) consumption Inspection 4,200,000 Inspection 15,000 inspections Depreciation 1,312,000 Machine usage 160,000 machine-hours $12,560,000 During January 2021, Bilchew worked on two jobs, which consumed the following resources: Job 2021-A1 Job 2021-A2 Direct materials cost $ 6,500 $ 22,000 Direct labour cost $42,000 $165,000 Machine-hours 1,800 7,000 Number of inspections 200 200
1. SIP Inc. (SIP) is plastic injection molding company specializing in front-end grilles. Bilchew Numbers wants to look at using an activity-based costing system. For 2021, he estimated overhead costs of $12,560,000 to be allocated using an activity-based costing system (see the table below). Bilchew also estimated that direct labour will be paid at the rate of $15 per hour. Activity Cost Pool Estimated Cost Cost Driver (allocation base) Total Quantity of Allocation Base Indirect materials $ 1,450,000 Direct materials $6,590,910 Indirect labour and 2,000,000 Direct labour 100,000 hours supervision Utilities 3,598,000 Power 20,000 kilowatt-hours (kWh) consumption Inspection 4,200,000 Inspection 15,000 inspections Depreciation 1,312,000 Machine usage 160,000 machine-hours $12,560,000 During January 2021, Bilchew worked on two jobs, which consumed the following resources: Job 2021-A1 Job 2021-A2 Direct materials cost $ 6,500 $ 22,000 Direct labour cost $42,000 $165,000 Machine-hours 1,800 7,000 Number of inspections 200 200
Chapter1: Financial Statements And Business Decisions
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The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:1. SIP Inc. (SIP) is plastic injection molding company specializing in front-end grilles.
Bilchew Numbers wants to look at using an activity-based costing system. For
2021, he estimated overhead costs of $12,560,000 to be allocated using an
activity-based costing system (see the table below). Bilchew also estimated that
direct labour will be paid at the rate of $15 per hour.
Cost Driver
Activity
Cost Pool
Estimated
Cost
Total Quantity of
Allocation Base
(allocation
base)
Indirect materials
$ 1,450,000 Direct materials
$6,590,910
Indirect labour and
2,000,000 Direct labour
100,000 hours
supervision
Utilities
3,598,000 Power
20,000 kilowatt-hours
(kWh)
consumption
Inspection
4,200,000 Inspection
15,000 inspections
Depreciation
1,312,000 Machine usage
160,000 machine-hours
$12,560,000
During January 2021, Bilchew worked on two jobs, which consumed the following
resources:
Job 2021-A1
Job 2021-A2
Direct materials cost
$ 6,500
$ 22,000
Direct labour cost
$42,000
$165,000
Machine-hours
1,800
7,000
Number of inspections
200
200
Power consumed (kWh)
800
800
Number of units
20
100
At the end of the year, SIP recorded the consumption of resources as follows: direct
materials, $6,660,800; direct labour, 101,540 hours; machine-hours, 158,700; power
consumption, 20,370 kilowatt-hours; number of inspections, 14,780. The company also
recorded actual overhead amounting to $12,538,250.
2 | Page
Required:
1. Calculate the activity rate for each activity cost pool.
2. Calculate the cost per unit using activity-based costing.
3. Determine the total manufacturing overhead applied to jobs during the year.
4. Calculate the under- or overapplied overhead for the year and show how you will
dispose of this amount at the end of the year.
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