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. Activity Setting up machines Inspecting components Providing utilities Cost $21,750 $5,300 $10,600 Driver 25 batches 5,300 parts 5,300 machine hours Overhead has been applied to output at a rate of 45% of direct labor costs. The following data pertain to Job 615. Direct materials materials Direct labor Batches Number of parts Machine hours $2,700 $3,800 4 batches 430 parts 560 machine hours Required: 1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level. Setting up machines Inspecting components Providing utilities Batch level Unit level Facility level

Answer 1

Ans. 1	This answer is totally correct.
Ans. 2	Particulars	Job 615
	Direct materials	$2,700.00
	Direct labor cost	$3,800.00
	Overhead applied	$1,710.00
	Total cost	$8,210.00
	*Calculations:
	Overhead cost applied = Direct labor cost * Predetermined overhead rate
		$3,800 * 45%
		$1,710
Ans. 3	Particulars	Job 615
	Direct materials	$2,700.00
	Direct labor cost	$3,800.00
	Overhead cost assigned	$5,030.00
	Total manufacturing cost	$11,530.00
	*Calculations:
	Activity	Overhead cost	Driver	Activiy rate		Actual activity	Overhead assigned
		( A)	(B)	©		(D)	(C*D)
	Setting up machines	$21,750	25	$870	per setup	4	$3,480
	Inspecting components	$5,300	5300	$1	per part	430	$430
	Providing utilities	$10,600	5300	$2	per machine hour	560	$1,120
	Total Overhead Cost Assigned						$5,030