Question

Calculating Activity-Based Costing Overhead Rates

Assume that manufacturing overhead for Goldratt Company consisted of the following activities and costs:

Setup (1,000 setup hours)	$118,000
Production scheduling (400 batches)	60,000
Production engineering (60 change orders)	150,000
Supervision (2,000 direct labor hours)	46,000
Machine maintenance (12,000 machine hours)	60,000
Total activity costs	$434,000

The following additional data were provided for Job 845:

Direct materials costs	$7,000
Direct labor cost (5 Milling direct labor hours;35 Finishing direct labor hours)	$1,000
Setup hours	5 hours
Production scheduling	1 batch
Machine hours used (25 Milling machine hours;5 Finishing machine hours)	30 hours
Production engineering	3 change orders

(a) Calculate the cost per unit of activity driver for each activity cost category.
Setup
$Answer
Production scheduling
$Answer
Production engineering
$Answer
Supervision
$Answer
Machine maintenance
$Answer

(b) Calculate the cost of Job 845 using ABC to assign the overhead costs.
$Answer

(c) Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours. (Round your answer to the nearest dollar.)
$Answer

(d) Calculate the cost of Job 845 using a machine hour departmental overhead rate for the Milling Department ($32 per hour) and a direct hour overhead rate for the Finishing Department ($102 per hour). (Round your answer to the nearest dollar.)
$Answer

Answer 1

ANSWER

a). Calculate the cost per unit of activity driver for each activity cost category.

Setup (118000/1000)	118 per setup
Production scheduling (60000/400)	150 per batch
Production engineering (150000/60)	2500 per change order
Supervision (46000/2000)	23 per direct labour hour
Machine maintenance (60000/12000)	5 per machine hour

b). Calculate the cost of Job 845 using ABC to assign the overhead costs.

Direct material cost	7000
Direct labour cost	1000
Setup cost (118*5)	590
Production scheduling (150*1)	150
Production scheduling (2500*3)	7500
Supervision (23*40)	920
Machine maintenance (5*30)	150
Total job cost	17310

c). Calculate the cost of Job 845 using the plantwide overhead rate based on machine hours. (Round your answer to the nearest dollar.)

Overhead rate = 434000/12000 = 36.167 per machine hour

Direct material	7000
Direct labour	1000
Overhead cost	1085
Total job cost	9085

d)

Cost of Job 845:
Direct materials	7000
Direct labor	1000
Overheads:
Milling department ($32 x 25)	800
Finishing department ($102 x 35)	3,570
Total job cost	12,370

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