Question

Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is:

Firenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Purchasing $40,000 Setups 40,000 Engineering 50,000 Other 40,000 Previously, Sanjay Bhatt, Firenza Company's controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: Job 1 Job 2 Direct materials $4,600 $9,340 Direct labor $1,200 $2,200 Number of purchase orders 15 20 Number of setups 3 4 Number of engineering hours 45 10 Number of machine hours 200 200 The typical bid price includes a 40 percent markup over full manufacturing cost.

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Answer 1

Requirement 1- Computation of Plantwide Overhead rate $ Estimated Overhead cost Estimated machine hours Plantwide Overhead rate (170000/50000) 170,000 50000 machine hours 3.4 per machine hour $ Direct Materials Direct Labor Applied Overhead $ $ $ Job 1 4,600 $ 1,200 $ 680 $ (200*3.40) 6,480 $ 2,592 $ 9,072 $ Job 2 9,340 2,200 680 (200*3.40) 12,220 4,888 17,108 Total Manufacturing costs Add- Mark up (40% of above) Bid price $ $ $ Requirement 2- Computation of OH rate per driver Activity Purchasing rate Setup cost rate Engineering rate Other cost rate Cost Driver Budgeted Cost A No. of orders $ 40,000 No. of setups $ 40,000 Engineering hours $ 50,000 Machine hours $ 40,000 Driver Activity Cost per driver B A/B 5000 $ 8.0 500 $ 80.0 2500 20.0 50000 0.8 Allocation of Manufacturing OH using ABC Driver activity 15 Purchasing Setups Engineering Other Total OH allocated 3 $ $ $ $ Job 1 Activity rate 8.0 $ 80.0 $ 20.0 $ 0.8$ $ Job 2 Total Driver activity Activity rate 120 20 $ 8.0 $ 240 4 $ 80.0 $ 900 10 $ 20.0 $ 160 200 $ 0.8$ 1,420 $ Total 160 320 200 45 200 160 840 $ Direct Materials Direct Labor Applied Overhead Total Manufacturing costs Add- Mark up (40% of above) Bid price $ $ $ $ Job 1 4,600 $ 1,200 $ 1,420 $ 7,220$ 2,888 $ 10,108$ Job 2 9,340 2,200 840 12,380 4,952 17,332