Question

Calculating Activity-Based Costing Overhead Rates Assume that manufacturing overhead for Glassman Company consisted of the following activities and costs: Setup (1,000 setup hours) $288,000 Production scheduling (400 batches) 60,000 Production engineering (60 change orders) 180,000 Supervision (2,000 direct labor hours) 56,000 Machine maintenance (12,000 machine hours) 168,000 Total activity costs $752,000 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 Production scheduling cost $ Production engineering cost $ Supervision cost Machine operating cost $ b. Calculate the cost of Job 845 using ABC to assign the overhead costs. Job 845 Direct materials cost Direct labor cost Manufacturing overhead costs:

Answer 1

a) The cost per unit of activity driver for each activity cost category:
Activity	Overhead cost per unit of activity driver
Setup	288000/1000 = 288
Production scheduling cost	60000/400 = 150
Production engineering cost	180000/60 = 3000
Supervision cost	56000/2000 = 28
Machine operating cost	168000/12000 = 14
b) The cost of Job 845 using ABC for overhead assignment:
JOB 845	Amount $
Direct Materials Cost	7000
Direct Labor Cost	1000
Manufacturing Overhead Costs:
Setup costs	288*5 =1440
Production scheduling	150
Production engineering	3000*3 = 9000
Supervision	28*40 = 1120
Machine operations	30 * 14 = 420
Total Cost	20130
c) Company-wide overhead rate using machine hours = Total overhead / expected MHs
Total overhead / expected MHs = 752000/12000 = 62.67 per MH
The cost of Job 845 using Company-wide overhead rate:
JOB 845	Amount $
Direct Materials Cost	7000
Direct Labor Cost	1000
Manufacturing Overhead Costs:	40*62.67 = 2506.80
Total Cost	10506.8
d) Machine hour departmental overhead rate for Milling = Milling department O/H / Machine hours in milling
Machine hour departmental overhead rate for Milling = 484000 / 10000 = 48.40 per MH
DLH departmental overhead rate for Finishing = Finishing department O/H / DLH in Finishing
DLH departmental overhead rate for Finishing = 260000 / 1000 = 260 per DLH
The cost of Job 845 using multiple overhead rates:
JOB 845	Amount $
Direct Materials Cost	7000
Direct Labor Cost	1000
Manufacturing Overhead Costs:
Milling Department	25*48.4 = 1210
Finishing Department	35*260 = 9100
Total Cost	18310