Bender Electric Motors produces electric motors used by home appliance and other manufacturing companies. Each motor is built to customer specifications although the number of units requested may vary from 1 to as many as 2,000. Bender has recently adopted an activity-based costing system with the following overhead costs and drivers. Cost Pool Annual Amount Annual Activity Cost Driver Direct labor related Material ordering Material inspection Equipment setup Quality control Machine related $ 400,000 $1,000,000 Direct labor cost 100,000 5,000 Purchase orders Receiving reports Setups Inspections of motors Machine hours 600,000 4,000 200,000 1,000 400,000 2,000 800,000 40,000 Miscellaneous 400,000 $4,000,000 Product costs other Total overhead $2,900,000 than miscellaneous overhead Recently the company received an order from Kromer's Department Stores for 10 identical motors for use in a holiday display. Bender estimates the following costs and activities related to the order: Material cost $500 Labor cost $200 Purchase orders Receiving reports Setups Inspections Machine hours 1 1 10 Note that the costs indicated are for all 10 motors-they are not per motor. REQUIRED a. Calculate the cost of the Kromer job using the new ABC system. b. Calculate the cost of the Kromer job assuming the company used a traditional costing sys- tem with labor cost as the only allocation base.
Bender Electric Motors produces electric motors used by home appliance and other manufacturing companies. Each motor is built to customer specifications although the number of units requested may vary from 1 to as many as 2,000. Bender has recently adopted an activity-based costing system with the following overhead costs and drivers. Cost Pool Annual Amount Annual Activity Cost Driver Direct labor related Material ordering Material inspection Equipment setup Quality control Machine related $ 400,000 $1,000,000 Direct labor cost 100,000 5,000 Purchase orders Receiving reports Setups Inspections of motors Machine hours 600,000 4,000 200,000 1,000 400,000 2,000 800,000 40,000 Miscellaneous 400,000 $4,000,000 Product costs other Total overhead $2,900,000 than miscellaneous overhead Recently the company received an order from Kromer's Department Stores for 10 identical motors for use in a holiday display. Bender estimates the following costs and activities related to the order: Material cost $500 Labor cost $200 Purchase orders Receiving reports Setups Inspections Machine hours 1 1 10 Note that the costs indicated are for all 10 motors-they are not per motor. REQUIRED a. Calculate the cost of the Kromer job using the new ABC system. b. Calculate the cost of the Kromer job assuming the company used a traditional costing sys- tem with labor cost as the only allocation base.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Bender Electric Motors produces electric motors used by home appliance and other manufacturing
companies. Each motor is built to customer specifications although the number of units requested
may vary from 1 to as many as 2,000.
Bender has recently adopted an activity-based costing system with the following overhead costs
and drivers.
Cost Pool
Annual Amount
Annual Activity
Cost Driver
Direct labor related
$ 400,000
$1,000,000
Direct labor cost
Material ordering
Material inspection
100,000
5,000
Purchase orders
Receiving reports
Setups
Inspections of motors
Machine hours
600,000
4,000
200,000
Equipment setup
Quality control
Machine related
1,000
400,000
2,000
800,000
40,000
Miscellaneous
400,000
$4,000,000
Product costs other
Total overhead
$2,900,000
than miscellaneous
overhead
Recently the company received an order from Kromer's Department Stores for 10 identical motors
for use in a holiday display. Bender estimates the following costs and activities related to the order:
Material cost
$500
Labor cost
$200
Purchase orders
2
Receiving reports
Setups
Inspections
Machine hours
2
1
1
10
Note that the costs indicated are for all 10 motors-they are not per motor.
REQUIRED
a. Calculate the cost of the Kromer job using the new ABC system.
b. Calculate the cost of the Kromer job assuming the company used a traditional costing sys-
tem with labor cost as the only allocation base.
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