Bella Clear Windows designs and builds custom windows for luxury homes. Most of the windows are custom made but occasionally the company does mass production on order.  Its budgeted manufacturing overhead costs for the year 2017 are as follows:   Overhead Cost Pools                     Amount Purchasing$  26,000 Production (cutting, milling, finishing)176,000 Setting up machines65,000 Inspecting35,000 Utilities   75,000 Total budget overhead costs$377,000   For the last three years, the company has been allocating overhead to products on the basis of machine hours. For the year 2017, 20,000 machine hours are budgeted.   The operations manager of Bella Clear recently directed her accountant to implement the activity-based costing system she has repeatedly proposed. The accountant and production foreman identified the following cost drivers and their usage for the previously budgeted overhead cost pools:   Overhead Cost Pools                   Activity Cost DriversTotal Activity PurchasingNumber of orders80 Production (cutting, milling, finishing)Direct labor hours16,000 Setting up machinesNumber of setups250 InspectingNumber of inspections1,250 UtilitiesSquare feet occupied15,000   During this month, the company received an order for 80 windows from a housing development contractor. The accountant prepared cost estimates for producing components for 80 windows to submit a contract price per window set to the contractor. The following data for the production of 80 windows is accumulated:   Direct materials$22,000 Direct labor$23,100 Machine hours1,600 Direct labor hours2,100 Number of purchase orders8 Number of machine setups15 Number of inspections12 Number of square feet occupied1,200   Instructions (a)Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (b)Compute the manufacturing cost per window under traditional costing. (c)Compute the manufacturing cost per window under the proposed activity-based costing system.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Bella Clear Windows designs and builds custom windows for luxury homes. Most of the windows are custom made but occasionally the company does mass production on order.  Its budgeted manufacturing overhead costs for the year 2017 are as follows:

 

Overhead Cost Pools                     Amount

Purchasing$  26,000

Production (cutting, milling, finishing)176,000

Setting up machines65,000

Inspecting35,000

Utilities   75,000

Total budget overhead costs$377,000

 

For the last three years, the company has been allocating overhead to products on the basis of machine hours. For the year 2017, 20,000 machine hours are budgeted.

 

The operations manager of Bella Clear recently directed her accountant to implement the activity-based costing system she has repeatedly proposed. The accountant and production foreman identified the following cost drivers and their usage for the previously budgeted overhead cost pools:

 

Overhead Cost Pools                   Activity Cost DriversTotal Activity

PurchasingNumber of orders80

Production (cutting, milling, finishing)Direct labor hours16,000

Setting up machinesNumber of setups250

InspectingNumber of inspections1,250

UtilitiesSquare feet occupied15,000

 

During this month, the company received an order for 80 windows from a housing development contractor. The accountant prepared cost estimates for producing components for 80 windows to submit a contract price per window set to the contractor. The following data for the production of 80 windows is accumulated:

 

Direct materials$22,000

Direct labor$23,100

Machine hours1,600

Direct labor hours2,100

Number of purchase orders8

Number of machine setups15

Number of inspections12

Number of square feet occupied1,200

 

Instructions

(a)Compute the predetermined overhead rate using traditional costing with machine hours as the basis.

(b)Compute the manufacturing cost per window under traditional costing.

(c)Compute the manufacturing cost per window under the proposed activity-based costing system.

 

 

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