Blue Devil Inc. has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown): Activity Total Cost Cost Driver Maintenance $20,000 Machine hours Materials receiving 80,000 Shipments received Machine setups 50,000 Number of setups Inspection 40,000 Number of inspections The expected activity for the year for various cost drivers is: Direct Labor Hours 40,000 Machine Hours 20,000 Shipments Received 4,000 Setups 200 Quality Inspections 8,000 The company is considering accepting a significant production contract. Estimates for the contract are as follows: Direct materials $100,000 Direct labor (7,500 hours) $150,000 Number of material shipments received 290 Number of inspections 50 Number of setups 35 Number of machine hour 3,000 NOTE: Round all per-unit costs to nearest cent. Required : a. What’s the pool rate for each activity under Activity-Based Costing? b. How much overhead should be allocated to the contract based on Activity-Based Costing? c. What is the total cost of the proposed contract under Activity-Based Costing?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Blue Devil Inc. has a significant level of manufacturing
|
Activity |
Total Cost |
Cost Driver |
|
Maintenance |
$20,000 |
Machine hours |
|
Materials receiving |
80,000 |
Shipments received |
|
Machine setups |
50,000 |
Number of setups |
|
Inspection |
40,000 |
Number of inspections |
The expected activity for the year for various cost drivers is:
|
Direct Labor Hours |
40,000 |
|
Machine Hours |
20,000 |
|
Shipments Received |
4,000 |
|
Setups |
200 |
|
Quality Inspections |
8,000 |
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
|
Direct materials |
$100,000 |
|
Direct labor (7,500 hours) |
$150,000 |
|
Number of material shipments received |
290 |
|
Number of inspections |
50 |
|
Number of setups |
35 |
|
Number of machine hour |
3,000 |
NOTE: Round all per-unit costs to nearest cent.
Required :
a. What’s the pool rate for each activity under Activity-Based Costing?
b. How much overhead should be allocated to the contract based on Activity-Based Costing?
c. What is the total cost of the proposed contract under Activity-Based Costing?
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