Question

Kirby Industries, a small, family-run manufacturer, has adopted an ABC system. The following manufacturing activities, indirect manufacturing costs, and usage of cost drivers have been estimated for the year Click the icon to view activities, total costs, and cost drivers.) During May. John and Allison Kirby machined and assembled Job 405. John worked a total of 12 hours on the job, while Allison worked 4 hours on the job. John is paid a $25 per hour wage rate, while Allison is paid $30 per hour because of her additional experience level. Direct materials requisitioned for Job 405 totaled $1,350. The following additional information was collected on Job 405. The job required 2 machine setups, 6 machine hours, and 2 quality control tests. 1. Compute the activity cost allocation rates for the year. (Round your answers to the nearest whole dollar) First determine the formula to compute the allocation rate for the activity-based cost rate, then calculate the rate for each activity = Activity cost allocation rate

Answer 1

	Total manufacturing overhead	/	Estimated total use of cost driver	=	Activity cost allocation rate
Machine setups	$           1,64,300	/	3100	=	$                  53	per setup
Machining	$           8,08,000	/	5050	=	$                160	per machine hour
Quality control	$           3,74,000	/	4400	=	$                  85	per QC test
Job cost record for Job 405	Manufacturing costs
Direct material	$                 1,350
Direct labor	$                     420
Manufacturing overhead	$                 1,236
Total job cost	$                 3,006
Workings:
	Hours		Rate per hour
John	12	X	25	=	$                300
Allison	4	X	30	=	$                120
Total Direct labor cost				=	$                420
	Total use of cost driver		Activity cost allocation rate
Machine setups	2	X	$                          53	=	$                106
Machining	6	X	$                        160	=	$                960
Quality control	2	X	$                          85	=	$                170
Total Manufacturing overhead				=	$            1,236

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