Question

Ponder Ltd. has two categories of overhead: Maintenance and Shipping. Expected costs and activity levels for these categories for 20x2 are as follows:

	Maintenance	$375870	24088 machine hours
	Shipping	$722452	1908 shipments

In developing a bid for a proposed job, Ponder has assembled the following data:

	Direct materials	$2748
	Direct labour (at $7/hour)	$12185
	Machine hours	6268
	Number of shipments	9

Using activity-based costing and the appropriate cost drivers, what is the total cost of the potential job?

Select one:

a. $27162

b. $116147

c. $45503

d. $101214

Answer 1

Correct answer---------b. $116147

Working

	Potential job
Direct material	$              2,748.00
Direct labor	$            12,185.00
Overheads	$        1,01,213.89
Total Cost	$        1,16,146.89

.

Cost assigned to Potential job
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Maintenance	$           15.60	6,268.00	$         97,806.09
Shipping	$        378.64	9.00	$           3,407.79
Total Overheads assigned			$      1,01,213.89

.

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Maintenance	Number of machine hour	$     3,75,870.00	24088	$             15.60	Per machine hour
Shipping	Number of shipment	$     7,22,452.00	1908	$          378.64	Per shipment