Question

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows. Driver Cost Activity Setting up machinfes Inspecting components Providing utilities $21,600 $ 5,000 $10,000 27 batches 5,e00 parts 5,080 machine hours Overhead has been applied to output at a rate of 60 % of direct labor costs. The following data pertain to Job 615 Direct naterials Direct lebor Batches Number of parts Machine hours $2,300 $3,600 4 batches 560 parts 640 machine hours Required: 1. Clossify each of its three overheed activities as unit level, batch level, product level, or facility level.

Answer 1

unit level cost are incurred each time unit is produced

batch level incurs when batch of goods are produced

product level costs are incurred to produce each type of product

facility level are incurred to sustain the facility general costs.

setting up machine	batch level
inspecting components	unit level
providing utilities	facility level

2.cost of Job 615 ABC

Activity	cost	cost per activity
setting up machine	21600	800per batch [21600/27batches]
inspecting componets	5000	$1 per part[5000/5000]
providing utilities	10000	$2 per machine hour[10000/5000]

TOTAL MANUFACTURING COST

Direct material	$2300
Labor	$3600
overhead
setting up machine	$3200	[$800*4]
inspecting componets	$560	[$1*560]
providing utilities	$1280	[$2*640]
Total Manufacturing cost	$10940	[2300+3600+3200+560+1280]