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FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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LO.1 & LO. 3-LO.5 (Activity analysis, ABC; pricing; cost drivers; decision making) Hurley Corporation has identified the following overhead costs and cost drivers for the coming year: Budgeted Budgeted Activity Level Overhead Item Cost Driver Cost Machine setup Number of setups $ 20,000 200 Inspection Number of inspections 130,000 6,500 Material handling Number of material moves 80,000 8,000 Engineering Engineering hours 50,000 1,000 $280,000 The following information was collected on three jobs that were completed dur- ing the year: Job 101 Job 102 Job 103 Direct material $5,000 $12,000 $8,000 Direct labor $2,000 $ 2,000 $4,000 Units completed 100 50 200 Number of setups 4 Number of inspections 20 10 30 Number of material moves 30 10 50 Engineering hours 10 50 10 Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000. a. If the company uses activity-based costing, how much overhead cost should be assigned to Job 101? b. If the company uses activity-based costing, compute the cost of each unit of Job 102. c. The company prices its products at 140 percent of cost. If the company uses activity- based costing, what price should it set for each unit of Job 103? d. If the company used a traditional accounting system and allocated overhead based on direct labor cost, by how much would each unit of Job 103 be over- or under- costed compared to activity-based costing? What would be the management impli- cations of this difference?
Transcribed Image Text:LO.1 & LO. 3-LO.5 (Activity analysis, ABC; pricing; cost drivers; decision making) Hurley Corporation has identified the following overhead costs and cost drivers for the coming year: Budgeted Budgeted Activity Level Overhead Item Cost Driver Cost Machine setup Number of setups $ 20,000 200 Inspection Number of inspections 130,000 6,500 Material handling Number of material moves 80,000 8,000 Engineering Engineering hours 50,000 1,000 $280,000 The following information was collected on three jobs that were completed dur- ing the year: Job 101 Job 102 Job 103 Direct material $5,000 $12,000 $8,000 Direct labor $2,000 $ 2,000 $4,000 Units completed 100 50 200 Number of setups 4 Number of inspections 20 10 30 Number of material moves 30 10 50 Engineering hours 10 50 10 Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000. a. If the company uses activity-based costing, how much overhead cost should be assigned to Job 101? b. If the company uses activity-based costing, compute the cost of each unit of Job 102. c. The company prices its products at 140 percent of cost. If the company uses activity- based costing, what price should it set for each unit of Job 103? d. If the company used a traditional accounting system and allocated overhead based on direct labor cost, by how much would each unit of Job 103 be over- or under- costed compared to activity-based costing? What would be the management impli- cations of this difference?
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