Question

! Required information {The following information applies to the questions displayed below.) Craft Pro Machining produces machine tools for the construction industry. The following details about overhead costs were taken from its company records. Production Activity Indirect Labor Indirect Materials Other Overhead Grinding $340,000 Polishing $140,000 Product 450,000 modification Providing power $260,000 Syatem calibration 550,000 Additional information on the drivers for its production activities follows. Grinding Polishing Product modification Providing power System calibration 10,000 machine hours 18,000 machine hours 2,200 engineering hours 19,000 direct labor hours 900 batches Number of units Machine hours Engineering hours Batches Direct labor hours Job 3175 170 units 300 MH eng. 29 hours 10 batches 440 DLH Job 4286 2,125 units 3,000 MH 20 eng. 20 hours 30 batches 3,960 DLH Required: 2, 3 & 4. Compute the activity overhead rates using ABC. Combine the grinding and polishing activities into a single cost pool. Determine overhead costs to assign to the above jobs using ABC. What is the overhead cost per unit for Job 3175? What is the overhead cost per unit for Job 4286? (Round your activity rate and average overhead cost per unit to 2 decimal places. Round "overhead assigned to the nearest whole dollar.) Activity Job 3175 Activity driver incurred Job 4286 Activity driver Overhead incurred assigned Overhead Cost Activity Drivers Overhead assigned Activity Rate Grinding & Polishing Machine hours Product modification Engineering hrs. Providing power Direct labor hrs System calibration batches

Answer 1

Solution:

						Job 3175		Job. 4386
Activity	Overhead cost (a)	Activity drivers (b)		Activity rate (c = a ÷ b)		Activity driver incurred (d)	Overhead assigned (e = d × c)	Activity driver incurred (f)	Overhead assigned (g = f × c)
Grinding & Polishing	$480,000	18,000	Machine hours	$26.67	per machine hour	300	$8,001	3,000	$80,010
Production modifications	$450,000	2,200	Engineering hours	$204.55	per engineering hour	29	$5,932	20	$4,091
Providing power	$260,000	19,000	Direct labor hours	$13.68	per direct labor hour	440	$6,019	3,960	$54,173
System calibration	$550,000	900	batches	$611.11	Per batch	10	$6,111	30	$18,333
						Total overhead costs	$26,063		$156,607
						(/) Number of units	170		2,125
						Average overhead costs per unit	$153.31		$73.70

Calculations:

Grinding & Polishing = $340,000 + $140,000

= $480,000

Activity rate = Overhead costs / Activity drivers

Overhead assigned = Activity rate × Activity driver incurred

Average overhead cost per unit = Total overhead costs / Number of units