Question

Scannell Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $1,695,000 in total manufacturing overhead costs in the upcoming year and will use 15,000 machine hours. Click the icon to view the additional information about the hazardous waste disposal fees.) Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows: 3: (Click the icon to view the expected usage and costs.) During the year, Job 352 is started and completed. Usage for this job follows: (Click the icon to view the usage for Job 352.) Read the requirements. Requirement 1. Calculate the cost of Job 352 using the traditional plantwide manufacturing overhead rate based on machine hours. Begin by calculating the plantwide overhead rate. First identify the formula used to compute the plantwide overhead rate, then compute the rate. (Abbreviations used: MOH = manufacturing overhead; mfg. = manufacturing) Plantwide mfg. overhead rate

Answer 1

1 Calculation under tradional method Predetermined Plantwide Overhead rate Estimated Total Manufacturing Overhead Cost 1695000 / Estimated Total Machine Hours = Plantwide Mfg. overhead rate 15000 113 per MH Total Cost of Job 352 Add Add Direct Material Direct Labor Overhead applied Total Job Cost 16,250 ( 250 pound x $65 / pound) 2,800 (70 direct labor hour x $40/labor hour) 11,300 (100 machine hour x 113 / machine hour) 30,350 Overhead cost applied = Machine hours x Predetermined rate - 2 Calculations under ABC method. Schedule Showing computation of activity based overhead rates (per cost driver). Activity rate = Estimated OH Cost / Estimated Activity Estimated Cost Estimated Activity Activity Activity Rate Machine Maintenance cost Engineering Change Orders Hazardous Waste Disposal Total Overhead Cost $ 600,000 $ 320,000 $ 775,000 $1,695,000 15000 MHS 4000 Change orders $ 2500 lbs of Materiall $ 40.00 Per MH 80.00 Per Change order 310.00 Per lbs of Material Schedule showing assigning of each product based on the use of cost driver Cost Assigned = Expected Cost driver * Activity based overhead rate Activity cost pool Job 352 Expected Activity Activity Rate 100 $ 40.00 8 $ 80.00 40 $ 310.00 Machine Maintenance cost Engineering Change Orders Hazardous Waste Disposal Total Overhead Cost Assigned Cost Assigned $ 4,000 $ 640 $ 12,400 $ 17,040 Total Cost of Job 352 Add Add Direct Material Direct Labor Overhead applied Total Job Cost $ $ $ 16,250 2,800 17,040 36,090 Cost estimate based on Activity based costing would provide more useful information. As it tassigns cost to each and every activity and considers activity rate for every product. This information is useful to know acurate costing of a product. 3