Required 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine hours. 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. 3. Explain why Shirley's Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process.

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Chapter1: Financial Statements And Business Decisions
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1. Compute the total overhead allocated to each job under a simple costing system, where
overhead is allocated based on machine hours.
2. Compute the total overhead allocated to each job under an activity-based costing system
using the appropriate activity drivers.
3. Explain why Shirley's Custom Framing might favor the ABC job-costing system over the
simple job-costing system, especially in its bidding process.
Transcribed Image Text:Required 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine hours. 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. 3. Explain why Shirley's Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process.
ACTIVITY-BASED COSTING.
The job-costing system at Shirley's Custom Framing has five indirect-cost pools (purchasing, material
handling, machine maintenance, product inspection, and packaging). The company is in the process of
bidding on two jobs: Job 215, an order of 16 intricate personalized frames, and Job 325, an order of six
standard personalized frames. The controller wants you to compare overhead allocated under the
current simple job-costing system and a newly designed activity-based job-costing system. The total
budgeted costs in each indirect-cost pool and the budgeted quantity of each activity driver are as
follows.
Purchasing
Material handling
Machine maintenance
Product inspection
Packaging
Budgeted Overhead
$ 25,600
32,900
150,000
11,200
12,400
$232,100
Number of purchase orders
Number of material moves
Machine-hours
Activity Driver
Purchase orders processed
Material moves
Number of inspections
Units produced
Machine-hours
Inspections
Units produced
Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses
more types of materials that need to be purchased, moved, and inspected relative to Job 325.
Job 215
26
14
20
12
16
Job 325
5
3
80
10
5
Budgeted Quantity of
Activity Driver
6
1,600
4,700
10,000
1,600
3,100
Transcribed Image Text:ACTIVITY-BASED COSTING. The job-costing system at Shirley's Custom Framing has five indirect-cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs: Job 215, an order of 16 intricate personalized frames, and Job 325, an order of six standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly designed activity-based job-costing system. The total budgeted costs in each indirect-cost pool and the budgeted quantity of each activity driver are as follows. Purchasing Material handling Machine maintenance Product inspection Packaging Budgeted Overhead $ 25,600 32,900 150,000 11,200 12,400 $232,100 Number of purchase orders Number of material moves Machine-hours Activity Driver Purchase orders processed Material moves Number of inspections Units produced Machine-hours Inspections Units produced Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 26 14 20 12 16 Job 325 5 3 80 10 5 Budgeted Quantity of Activity Driver 6 1,600 4,700 10,000 1,600 3,100
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