Question

International Steel Company has budgeted manufacturing overhead costs of $1,971,000. It has allocated overhead on a plant-wide basis to its two products (soft steel and hard steel) using machine hours, which are estimated to be 100,000 for the current year. The company has decided to experiment with activity-based costing and has created five activity cost pools and related activity cost drivers as follows: Activity Centre Material handling Purchase orders Product testing Machine set-up Machining Cost Driver Estimated Activity Number of moves Number of orders Number of tests Number of set-ups Machine hours $294,000 $105,000 $432,000 330,000 5810,000 42,000 moves 1,400 orders 3,600 tests 5,000 set-ups 100,000 machine hours Each unit of the products requires the following Soft Steel $300 $120 Hard Steel $200 $60 Direct materials costs Direct labour costs Purchase orders Machine set-up Product testing Machining Material handling 10 100 100

Answer 1