Chapter C, Problem 1PSA

Problem C-1A Applying activity-based costing P1 P2 A1

Craftmore Machining produces machine tools for the construction industry. The following details about overhead costs were taken from its company records.
Production Activity

Indirect labour
Indirect material
Other overhead
Grinding.............................
$320,000
Polishing............................ $13S,000
Product modification.................. 600,000
Providi ng power...................... $255,000
System calibration.................... 500,000
Additional information on the drivers for its production activities follows.

Grinding...................... 13,000 machine hours Providing power............ 17,000 direct labor hours
Polishing..................... 13,000 machine hours System calibration........... 400 batches
Product modification........... 1.500 engineering hours

Required
1. Compute the activity overhead rates using ABC. Form cost pools as appropriate.
2. Determine overhead costs to assign to the following jobs using ABC.

Number of units............. 2O0 units 2,500 Units
Machine hours.............. 550 MH 5,00 MH
Engineering hours........... 26 eng. hours 32 eng. hours
Batches ................... 30 batches 90 batches
Direct labor hours ........... 500 DLH 4.375 DLH

3. What is the overhead cost per unit for Job 3175? What is the overhead cost per unit for Job 4286? Check (3) Job 3175, $373.25 per unit
4. If the company used a plantwide overhead rate based on direct labor hours, what would be the overhead cost for each unit of Job 3175? for Job 4286?
5. Compare the overhead costs per unit computed in requirements 3 and 4 for each job.