Question

Gamble Products has adopted an ABC costing system. The following manufacturing activities, indirect manufacturing costs, and cost drivers have been identified: (Click the icon to view the activity costs and drivers.) The Job Cost Record for Job #624 revealed that direct materials requisitioned for the job totaled $1,140. The Job Cost Record also showed that direct labor for this job totaled 6 hours at a wage rate of $22 per hour. Other data collected on the resources used by Job #624 included: (Click the icon to view the other data.) Read the requirements. Requirement 1. Calculate the activity cost allocation rate for each of the five pools listed in the table. (Round the allocation rate to the nearest cent. Abbreviations used: DL = direct labor; MH = machine hour.) Activity cost allocation rate Data Table Requirements Data Table Total estimated amount of allocation base activity 3,000 setups 6,500 machine hours 3 machine setups required 1. Calculate the activity cost allocation rate for each of the five pools listed in the table. 2. Calculate the total cost of Job #624 (use an ABC costing system). 3. Why would ABC provide a more accurate allocation of manufacturing overhead (MOH) than a plantwide rate? 4. Assume that Gamble Products used traditional costing system rather than an ABC system. Its plantwide MOH rate would have been determined using direct labor (DL) hours as the allocation base. How much cost distortion would have occurred on this job? Total estimated MOH Activity costs related to activity Machine setup 90,000 Machining 1,235,000 Polishing. 108,000 Quality control 112,500 $ Facility-level costs.. 270,000 $ 1,815,500 Total manufacturing overhead (MOH)... 5 machine hours 9,000 polishing cloths 2,500 tests run 3 polishing cloths 3 quality control tests run 90,000 DL hours Print Done Print Done Print Done

Answer 1

Solution

	Total activity cost	/	Activity base total	=	Activity cost allocation rate
Machine setup	$              90,000	/	3000	=	$                    30	Per setup
Machining	$        1,235,000	/	6500	=	$                  190	Per machine hour
polishing'	$            108,000	/	9000	=	$                    12	Per polishing cloth
Quality control	$            112,500	/	2500	=	$                    45	Per test run
Facility level cost	$            270,000	/	90000	=	$                       3	Per DL hour