Question

questions 2 and 3

SP 17 After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows. Activity Cost Driver Setting up machines $20,000 25 batches Inspecting components $ 7,500 5,000 parts Providing utilities $10,000 5,000 machine hours Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615. Direct materials $2.500 Direct labor $3.500 Batches 2 batches Number of parts 400 parts Machine hours 600 machine hours O ere to search i a ***

Answer 1

1) Total Cost under traditional costing

Direct material	2500
Direct labor	3500
Overhead (3500*50%)	1750
Total Cost	7750

2) Total Cost under ABC costing

Direct material	2500
Direct labor	3500
Setting up batches (20000/25*2)	1600
Inspecting component (7500/5000*400)	600
Providing utilities (10000/5000*600)	1200
Total Cost	9400