Chapter 9, Problem 42E

Activity-Based Costing: Cost Flows through T-Accounts

Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:

Direct materials costs were $600,000 and direct labor costs were $300,000 during July, when the Fabrication Department handled 3,000 pounds of materials, made 500 inspections, had 25 setups, and ran the machines for 10,000 hours.

Required

Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory. Use the accounts Materials Inventory, Wages Payable, Work-in-Process Inventory, Finished Goods Inventory, and four overhead applied accounts.