Question

1. The Green Company makes boats from wood. Job 459 is to build 40 rowboats.

Job 459 requires 1,000 pounds of wood costing $8 per pound. It requires 60 hours of direct labor costing $25 per hour.

                                                               Total cost for all jobs        Total amount of activity for all jobs

Type of manufacturing overhead      for the whole year                      for the whole year

Setup Cost                                                        $50,000                                 400 setups

Materials Handling                                         320,000                           16,000 moves

Electricity                                                           30,000                             6,000 machine hours

                                                                          _______

Total manufacturing overhead cost

for all jobs during the whole year             $400,000

Please calculate the following if the Green Company uses activity based costing (the ABC method)::

1. The allocation rate for setup cost
2. The allocation rate for materials handling
3. The allocation rate for electricity
4. The direct materials cost of job 459
5. The direct labor cost of job 459
6. The manufacturing overhead cost applied to job 489 if job 489 requires 4 setups, 150 moves of materials, and 40 machine hours
7. The total cost of job 459    
8. The cost per boat

Answer 1

1) Allocation rate for setup cost = 50000/400 = 125 per setup

2) Allocation rate for material handling = 320000/16000 = 20 per moves

3) Allocation rate for electricity = 30000/6000 = 5 per machine hour

4) The direct material cost = 1000*8 = 8000

5) The direct labor cost = 60*25 = 1500

6) The manufacturing overhead = (4*125+150*20+40*5) = 3700

7) Total cost of Job 459 = 8000+1500+3700 = 13200

8) The cost per boat = 13200/40 = 330 per boat