48. LO.1 & LO. 3–LO.5 (Activity analysis, ABC; pricing; cost drivers; decision making) Hurley Corporation has identifi ed the following overhead costs and cost drivers 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 $280,000 Th e following information was collected on three jobs that were completed dur- ing the year: Job 101 Job 102 Job 103 Direct material $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 $280,000. a. If the company uses activity-based costing, how much overhead cost should be assigned to Job 101? b. If the company uses activity-based costing, compute the cost of each unit of Job 102. c. Th e company prices its products at 140 percent of cost. If the company uses activity- based costing, what price should it set for each unit of Job 103?
48. LO.1 & LO. 3–LO.5 (Activity analysis, ABC; pricing; cost drivers; decision making)
Hurley Corporation has identifi ed the following
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
$280,000
Th e following information was collected on three jobs that were completed dur-
ing the year:
Job 101 Job 102 Job 103
Direct material $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
$280,000.
a. If the company uses activity-based costing, how much overhead cost should be
assigned to Job 101?
b. If the company uses activity-based costing, compute the cost of each unit of Job 102.
c. Th e company prices its products at 140 percent of cost. If the company uses activity-
based costing, what price should it set for each unit of Job 103?
d. If the company used a traditional accounting system and allocated overhead based
on direct labor cost, by how much would each unit of Job 103 be over- or under-
costed compared to activity-based costing? What would be the management impli-
cations of this diff erence?
e. Identify any non-value-added activities or activities that may be currently necessary
but appear to be ineffi cient in Hurley’s production process. Explain what steps the
company management could take to improve the production process and potentially
lower manufacturing costs.
f. Th e company is considering outsourcing inspections to an outside company that
would perform the inspections for $10 apiece. What are the potential total savings
if Hurley outsources the inspections? What other factors should company manage-
ment consider before making this decision?
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