Sampson Jewelry Corporation manufactures custom jewelry. In the past, Sampson has been using a traditional overhead allocation system based solely on direct labor hours. Sensing that this system was distorting costs and selling prices, Sampson has decided to switch to an activity-based costing system using three activity cost pools. Information on these activity cost pools are as follows: Activity Cost Pool Total Cost Total Activity Labor Related $40,000 8,000 Direct labor hours Machine Related $50,000 12,500 Machine Hours Quality Control $12,000 800 Inspections Sampson has received an order and will complete as Job #309 and expect to incur $900 of direct material, 30 hours of direct labor at $40 per hour, 80 machine hours, and 5 inspections. Sampson needs a markup of 40% on the job. Required: A). Calculate the activity rate and compute is the expected cost of job#309 under the activity-based costing system? What should be the quote on this job? B). Relative to the activity-based costing system, would Job #309 have been overcoated or undercoated under the traditional system and by how much?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Sampson Jewelry Corporation manufactures custom jewelry. In the past, Sampson has been using a traditional
|
Activity Cost Pool |
Total Cost |
Total Activity |
|
Labor Related |
$40,000 |
8,000 Direct labor hours |
|
Machine Related |
$50,000 |
12,500 Machine Hours |
|
Quality Control |
$12,000 |
800 Inspections |
Sampson has received an order and will complete as Job #309 and expect to incur $900 of direct material, 30 hours of direct labor at $40 per hour, 80 machine hours, and 5 inspections. Sampson needs a markup of 40% on the job.
Required:
A). Calculate the activity rate and compute is the expected cost of job#309 under the activity-based costing system? What should be the quote on this job?
B). Relative to the activity-based costing system, would Job #309 have been overcoated or undercoated under the traditional system and by how much?
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