E4-24A Compare traditional and ABC allocations on a job (Learning Objective 2) Radley Products has adopted an ABC costing system. The following manufacturing activi ties, indirect manufacturing costs, and cost drivers have been identified: Total estimated MOH costs related to activity $ 120,000 $1,050,000 $ 80,000 $ 280,000 S 120.000 Activity Machine setup Total estimated amount of allocation base activity 2,000 setups Machining Polishing Quality control Facility-level costs Total manufacturing overhead (MOH) 6,000 machine hours 10,000 polishing cloths 4,000 tests run 50,000 DL hours $1.650.000 The Job Cost Record for Job 8624 revealed that direct materials requisitioned for the job totaled $1,050. The Job Cost Record also showed that direct labor for this job totaled 10 hours at a wage rate of $25 per hour. Other data collected on the resources used by Job #624 included: 1 machine setup required 5 machine hours 2 polishing cloths 2 quality control tests run Requirements 1. Calculate the activity cost allocation rate for each of the five pools listed in the table. 2. Calculate the total cost of Job #624 (use an ABC costing system). 3. Why would ABC provide a more accurate allocation of manufacturing overhead (MOH) than a plantwide rate? 4. Assume that Radley Products used a traditional costing system rather than an ABC sys MOH rate would have been determined using direct labor (DL) hours
E4-24A Compare traditional and ABC allocations on a job (Learning Objective 2) Radley Products has adopted an ABC costing system. The following manufacturing activi ties, indirect manufacturing costs, and cost drivers have been identified: Total estimated MOH costs related to activity $ 120,000 $1,050,000 $ 80,000 $ 280,000 S 120.000 Activity Machine setup Total estimated amount of allocation base activity 2,000 setups Machining Polishing Quality control Facility-level costs Total manufacturing overhead (MOH) 6,000 machine hours 10,000 polishing cloths 4,000 tests run 50,000 DL hours $1.650.000 The Job Cost Record for Job 8624 revealed that direct materials requisitioned for the job totaled $1,050. The Job Cost Record also showed that direct labor for this job totaled 10 hours at a wage rate of $25 per hour. Other data collected on the resources used by Job #624 included: 1 machine setup required 5 machine hours 2 polishing cloths 2 quality control tests run Requirements 1. Calculate the activity cost allocation rate for each of the five pools listed in the table. 2. Calculate the total cost of Job #624 (use an ABC costing system). 3. Why would ABC provide a more accurate allocation of manufacturing overhead (MOH) than a plantwide rate? 4. Assume that Radley Products used a traditional costing system rather than an ABC sys MOH rate would have been determined using direct labor (DL) hours
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Activity-Based Costing, Lean Operations, and the Costs of Quality
E4-24A Compare traditional and ABC allocations on a job (Learning Objective 2)
Radley Products has adopted an ABC costing system. The following manufacturing activi-
ties, indirect manufacturing costs, and cost drivers have been identified:
Activity
Machine setup
Total estimated MOH
costs related to activity
Total estimated amount of
allocation base activity
$ 120,000
$1,050,000
Machining
Polishing
Quality control
Facility-level costs
sdngas 000'
6,000 machine hours
10,000 polishing cloths
4,000 tests run
50,000 DL hours
000'08
$ 280,000
$ 120.000
Total manufacturing overhead (MOH)
$1.650.000
The Job Cost Record for Job #624 revealed that direct materials requisitioned for the
job totaled $1,050. The Job Cost Record also showed that direct labor for this job totaled
10 hours at a wage rate of 525 per hour.
Other data collected on the resources used by Job #624 included:
1 machine setup required
5 machine hours
2 polishing cloths
2 quality control tests run
Requirements
1. Calculate the activity cost allocation rate for each of the five pools listed in the table.
2. Calculate the total cost of Job #624 (use an ABC costing system).
3. Why would ABC provide a more accurate allocation of manufacturing overhead
(MOH) than a plantwide rate?
4. Assume that Radley Products used a traditional costing system rather than an ABC sys-
tem. Its plantwide MOH rate would have been determined using direct labor (DL) hours
as the allocation base. How much cost distortion would have occurred on this job?
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