After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows. Activity Cost Driver Setting up machines $ 22,410 27 batches Inspecting components $ 4,600 4,600 parts Providing utilities $ 9,200 4,600 machine hours Overhead has been applied to output at a rate of 40% of direct labor costs. The following data pertain to Job 615. Direct materials $ 2,100 Direct labor $ 3,800 Batches 2 batches Number of parts 490 parts Machine hours 570 machine hours 1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level. 2. What is the total cost of Job 615 if Business Solutions applies overhead at 40% of direct labor cost? 3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?
After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows. Activity Cost Driver Setting up machines $ 22,410 27 batches Inspecting components $ 4,600 4,600 parts Providing utilities $ 9,200 4,600 machine hours Overhead has been applied to output at a rate of 40% of direct labor costs. The following data pertain to Job 615. Direct materials $ 2,100 Direct labor $ 3,800 Batches 2 batches Number of parts 490 parts Machine hours 570 machine hours 1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level. 2. What is the total cost of Job 615 if Business Solutions applies overhead at 40% of direct labor cost? 3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze
| Activity | Cost | Driver | |||
| Setting up machines | $ | 22,410 | 27 | batches | |
| Inspecting components | $ | 4,600 | 4,600 | parts | |
| Providing utilities | $ | 9,200 | 4,600 | machine hours | |
Overhead has been applied to output at a rate of 40% of direct labor costs. The following data pertain to Job 615.
| Direct materials | $ | 2,100 | |
| Direct labor | $ | 3,800 | |
| Batches | 2 | batches | |
| Number of parts | 490 | parts | |
| Machine hours | 570 | machine hours |
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
2. What is the total cost of Job 615 if Business Solutions applies overhead at 40% of direct labor cost?
3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?
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