4-19A Apply activity cost allocation rates (Learning Objective 2) Sidney Industries manufactures a variety of custom products. The company has tra- ditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $2,190,000 in total manufacturing overhead costs in the upcoming year and will use 15,000 machine hours. Up to this point, hazardous waste disposal fees have been absorbed into the plant- wide manufacturing overhead rate and allocated to all products as part of the manu- facturing overhead process. Recently, the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products, and as a result, profit margins on all products have been negatively impacted. Company man- agement wants to implement an activity-based costing system so that managers know the cost of each product, including its hazardous waste disposal costs. Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows: Estimated Activity for This Year Estimated Description of Cost Pool Cost Cost Driver $ 600,000 Number of machine hours Machine maintenance costs. 15,000 $ 270,000 Number of change orders Engineering change orders.. 3,000 Hazardous waste disposal. $1,320,000 Pounds of hazardous materials generated 4,000 Total overhead cost.. $2,190,000 During the year, Job 356 is started and completed. Usage for this job follows: 300 pounds of direct materials at $70 per pound 20 direct labor hours used at $25 per labor hour 90 machine hours used 9 change orders 50 pounds of hazardous waste generated Requirements 1. Calculate the cost of Job 356 using the traditional plantwide manufacturing overhead rate based on machine hours. 2. Calculate the cost of Job 356 using activity-based costing. 3. If you were a manager, which cost estimate would provide you more useful informa-

4-19A Apply activity cost allocation rates (Learning Objective 2) Sidney Industries manufactures a variety of custom products. The company has tra- ditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $2,190,000 in total manufacturing overhead costs in the upcoming year and will use 15,000 machine hours. Up to this point, hazardous waste disposal fees have been absorbed into the plant- wide manufacturing overhead rate and allocated to all products as part of the manu- facturing overhead process. Recently, the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products, and as a result, profit margins on all products have been negatively impacted. Company man- agement wants to implement an activity-based costing system so that managers know the cost of each product, including its hazardous waste disposal costs. Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows: Estimated Activity for This Year Estimated Description of Cost Pool Cost Cost Driver $ 600,000 Number of machine hours Machine maintenance costs. 15,000 $ 270,000 Number of change orders Engineering change orders.. 3,000 Hazardous waste disposal. $1,320,000 Pounds of hazardous materials generated 4,000 Total overhead cost.. $2,190,000 During the year, Job 356 is started and completed. Usage for this job follows: 300 pounds of direct materials at $70 per pound 20 direct labor hours used at $25 per labor hour 90 machine hours used 9 change orders 50 pounds of hazardous waste generated Requirements 1. Calculate the cost of Job 356 using the traditional plantwide manufacturing overhead rate based on machine hours. 2. Calculate the cost of Job 356 using activity-based costing. 3. If you were a manager, which cost estimate would provide you more useful informa-

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

ChapterC: Cases

Section: Chapter Questions

Problem 5.3SD: Scenario 4 Sharon Gillespie, a new buyer at Visionex, Inc., was reviewing quotations for a tooling...

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