**Overhead Cost Analysis for Craft Pro Machining** Craft Pro Machining is a company that produces machine tools for the construction industry. Below is a detailed breakdown of the overhead costs derived from company records and additional information on drivers for production activities. ### Overhead Costs | **Production Activity** | **Indirect Labor** | **Indirect Materials** | **Other Overhead** | |----------------------------|--------------------|------------------------|--------------------| | Grinding | $320,000 | | | | Polishing | | $135,000 | | | Product modification | $600,000 | | | | Providing power | | | $255,000 | | System calibration | $500,000 | | | ### Production Activity Drivers - **Grinding**: 13,000 machine hours - **Polishing**: 13,000 machine hours - **Product modification**: 1,500 engineering hours - **Providing power**: 17,000 direct labor hours - **System calibration**: 400 batches ### Job Specific Information | | **Job 3175** | **Job 4286** | |--------------------------|-----------------------|-----------------------| | **Number of units** | 200 units | 2,500 units | | **Machine hours** | 550 MH | 5,500 MH | | **Engineering hours** | 26 eng. hours | 32 eng. hours | | **Batches** | 30 batches | 90 batches | | **Direct labor hours** | 500 DLH | 4,375 DLH | **Required:** 5. To calculate the overhead cost per unit for each of the jobs (Job 3175 and Job 4286), when a plantwide overhead rate based on direct labor hours is used. Ensure you utilize the given data to determine the total overhead that can be allocated to each unit by dividing the total costs by the direct labor hours for each job. This analysis helps in understanding the cost distribution and efficiency in production activities. **Transcription for Educational Website: Overhead Cost Calculation** **Details Provided:** - **Number of Units:** - 200 units - 2,500 units - **Machine Hours (MH):** - 550 MH - 5,500 MH - **Engineering Hours:** - 26 engineering hours - 32 engineering hours - **Batches:** - 30 batches - 90 batches - **Direct Labor Hours (DLH):** - 500 DLH - 4,375 DLH **Requirement:** **5. Overhead Cost Calculation:** If the company uses a plantwide overhead rate based on direct labor hours, determine the overhead cost for each unit of Job 3175 and Job 4286. Note: Do not round intermediate calculations. Round "OH Cost per unit" answers to two decimal places. **Table for Calculation:** | Product | DL hours | Plantwide OH rate | Total Overhead Cost | Units Produced | OH Cost per unit | |---------|----------|-------------------|---------------------|----------------|------------------| | Job 3175| | | | | | | Job 4286| | | | | | This table is meant for calculating the overhead cost based on direct labor hours for the specified jobs. Ensure intermediate steps are calculated accurately before rounding the final OH Cost per unit.

Overhead Cost Analysis for Craft Pro Machining Craft Pro Machining is a company that produces machine tools for the construction industry. Below is a detailed breakdown of the overhead costs derived from company records and additional information on drivers for production activities. ### Overhead Costs | Production Activity | Indirect Labor | Indirect Materials | Other Overhead | |----------------------------|--------------------|------------------------|--------------------| | Grinding | $320,000 | | | | Polishing | | $135,000 | | | Product modification | $600,000 | | | | Providing power | | | $255,000 | | System calibration | $500,000 | | | ### Production Activity Drivers - Grinding: 13,000 machine hours - Polishing: 13,000 machine hours - Product modification: 1,500 engineering hours - Providing power: 17,000 direct labor hours - System calibration: 400 batches ### Job Specific Information | | Job 3175 | Job 4286 | |--------------------------|-----------------------|-----------------------| | Number of units | 200 units | 2,500 units | | Machine hours | 550 MH | 5,500 MH | | Engineering hours | 26 eng. hours | 32 eng. hours | | Batches | 30 batches | 90 batches | | Direct labor hours | 500 DLH | 4,375 DLH | Required: 5. To calculate the overhead cost per unit for each of the jobs (Job 3175 and Job 4286), when a plantwide overhead rate based on direct labor hours is used. Ensure you utilize the given data to determine the total overhead that can be allocated to each unit by dividing the total costs by the direct labor hours for each job. This analysis helps in understanding the cost distribution and efficiency in production activities. Transcription for Educational Website: Overhead Cost Calculation Details Provided: - Number of Units: - 200 units - 2,500 units - Machine Hours (MH): - 550 MH - 5,500 MH - Engineering Hours: - 26 engineering hours - 32 engineering hours - Batches: - 30 batches - 90 batches - Direct Labor Hours (DLH): - 500 DLH - 4,375 DLH Requirement: 5. Overhead Cost Calculation: If the company uses a plantwide overhead rate based on direct labor hours, determine the overhead cost for each unit of Job 3175 and Job 4286. Note: Do not round intermediate calculations. Round "OH Cost per unit" answers to two decimal places. Table for Calculation: | Product | DL hours | Plantwide OH rate | Total Overhead Cost | Units Produced | OH Cost per unit | |---------|----------|-------------------|---------------------|----------------|------------------| | Job 3175| | | | | | | Job 4286| | | | | | This table is meant for calculating the overhead cost based on direct labor hours for the specified jobs. Ensure intermediate steps are calculated accurately before rounding the final OH Cost per unit.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**Overhead Cost Analysis for Craft Pro Machining**

Craft Pro Machining is a company that produces machine tools for the construction industry. Below is a detailed breakdown of the overhead costs derived from company records and additional information on drivers for production activities.

### Overhead Costs

| **Production Activity** | **Indirect Labor** | **Indirect Materials** | **Other Overhead** |
|----------------------------|--------------------|------------------------|--------------------|
| Grinding | $320,000 | | |
| Polishing | | $135,000 | |
| Product modification | $600,000 | | |
| Providing power | | | $255,000 |
| System calibration | $500,000 | | |

### Production Activity Drivers

- **Grinding**: 13,000 machine hours
- **Polishing**: 13,000 machine hours
- **Product modification**: 1,500 engineering hours
- **Providing power**: 17,000 direct labor hours
- **System calibration**: 400 batches

### Job Specific Information

| | **Job 3175** | **Job 4286** |
|--------------------------|-----------------------|-----------------------|
| **Number of units** | 200 units | 2,500 units |
| **Machine hours** | 550 MH | 5,500 MH |
| **Engineering hours** | 26 eng. hours | 32 eng. hours |
| **Batches** | 30 batches | 90 batches |
| **Direct labor hours** | 500 DLH | 4,375 DLH |

**Required:**

5. To calculate the overhead cost per unit for each of the jobs (Job 3175 and Job 4286), when a plantwide overhead rate based on direct labor hours is used.

Ensure you utilize the given data to determine the total overhead that can be allocated to each unit by dividing the total costs by the direct labor hours for each job. This analysis helps in understanding the cost distribution and efficiency in production activities.

**Transcription for Educational Website: Overhead Cost Calculation**

**Details Provided:**

- **Number of Units:**
- 200 units
- 2,500 units

- **Machine Hours (MH):**
- 550 MH
- 5,500 MH

- **Engineering Hours:**
- 26 engineering hours
- 32 engineering hours

- **Batches:**
- 30 batches
- 90 batches

- **Direct Labor Hours (DLH):**
- 500 DLH
- 4,375 DLH

**Requirement:**

**5. Overhead Cost Calculation:**
If the company uses a plantwide overhead rate based on direct labor hours, determine the overhead cost for each unit of Job 3175 and Job 4286. Note: Do not round intermediate calculations. Round "OH Cost per unit" answers to two decimal places.

**Table for Calculation:**

| Product | DL hours | Plantwide OH rate | Total Overhead Cost | Units Produced | OH Cost per unit |
|---------|----------|-------------------|---------------------|----------------|------------------|
| Job 3175| | | | | |
| Job 4286| | | | | |

This table is meant for calculating the overhead cost based on direct labor hours for the specified jobs. Ensure intermediate steps are calculated accurately before rounding the final OH Cost per unit.

Expert Solution

Step 1

INTRODUCTION

Activity based costing is the method of costing which is used to allocate indirect costs to activities and then to products.

If a company is involved in production of more than 1 job, then applying a single rate to job is not precise. So, indirect costs are to be allocated based on the actual usage of cost of an activity.

But in case of traditional costing, company uses single overhead rate for entire factory. Here it is irrelevant that whether company produces 1 or more than 1 job. Overhead rate is calculated based on machine hours or direct labor hours used.

Companywide overhead rate = total overhead cost/direct labor hours or machine hours.

Job costing method is applied when company produces more than 1 job. Each job is unique in nature. Here direct cost is easily traceable and indirect costs are allocated on basis of machine hours or direct labor hours.

It is mostly applied in case of ship builders, construction companies and home builders. This method of costing is applied when goods and services are produced on job basis.

We shall calculate the requirements of the question in next step as follows: