Question

The job-costing system at Shirley's Custom Framing has five indirect-cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs, Job 215, an order of 16 intricate personalized frames and Job 325, an order of six standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly designed activity-based job-costing system. Total budgeted costs in each indirect-coat pool and the budgeted quantity of each activity driver are as follows. (Click the icon to view the cost and driver data.) A (Click the icon to view the job data.) ) Read the requirements. Requirement 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. Begin by calculating the overhead rate under the simple costing system. First select the formula, then enter the applicable amounts and calculate the rate. (Round your answer to the nearest cent. Abbreviations used: bgt. = budgeted, mach. = machine, mat. = material, purch. = purchase, qty = quantity.) Budgeted overhead rate Simple costing system i More Info i Data Table Information related to Job 215 and Job 325 follows. Job 215 Incurs more batch-level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 Job 325 26 5 Budgeted Overhead 25,600 32,900 Budgeted Quantity of Activity Driver 1,600 4,700 14 3 $ 20 Activity Driver Purchased orders processed Material moves Machine-hours Inspections Purchasing Material handling Machine maintenance Product Inspection Number of purchase orders Number of material moves Machine-hours - Number of inspections Units produced 80 12 5 150,000 10,000 16 6 1,600 11,200 12,400 Packaging Units produced 3,100 $ 232,100 Print Done Total ? Print Done Check Answer

1.	Compute the total overhead allocated to each job under a simple costing​ system, where overhead is allocated based on​ machine-hours.
2.	Compute the total overhead allocated to each job under an​ activity-based costing system using the appropriate activity drivers.
3.	Explain why Shirley's Custom Framing might favor the ABC​ job-costing system over the simple​ job-costing system, especially in its bidding process.

*There should be 10 total parts to this problem.

Answer 1

1. 70 tal overhead allocated to each Job under a simple costing System, where over head is allocated based on Job 325 machine -hours! Jub 215 Machine Hours 20 hours 80 hours Overhead allocation Rate $23.21 $23.21 Total overhead allocated 123.21x20; 23-21 X 80) $ 464-20 $1856.80

Overhead allocation Rate No tel 1. Calculation of Overhead allocation rate based on machine hour : Machine Hours Budgeted Overhead = $232.100 Machine Hours 10 000 Oveur head allocation rate $ 232 100 10000 $ 23.21 per mochine hour To to overhead allocated = Overhead allocation rate x Machine Hours On each Job, Job 215 Job 325 (a) Machine Hour 20 16) Overhead Allocation Rate $23.21 $23.21 Total Oveu head allocated axb) $ 464.10 $1856.80

2. Totul overhead allocated to each Jobs under an activity-based Costing system using the appropriate activity driver: Job 215 Job 325 (26% $16; 5x $16) $416 Purchasing Material Handling $80 (14x $7 ; 3 x $7) $ 98 $ 21 Machine Maintenance $ 300 $ 1200 Product Inspection (20 x $15; 80 x $15) (12 x $7; 5* $ 7) ( 16x $4; 6x $ 4) $84 $35 Packaging $64 $24 Total overhead Allocated $962 $ 1360

note 2 Overhead Allocation using Activity-based 10b-Costing system Budgeted Overhead Gudge ted Activity Rate Activity Driver (6) Activity Driver (d): (a) + (0) (0) $ 25600 Purchase orders Processed 1600 Purchasing Material Handling $ 32 900 $ 16.ee Material Moves 4700 $ 7 $ 15 Machine maintenance $ 150 000 Machine - hours 10000 Product Inspection | $ 11900 Inspections 1600 $ 7 Packaging $12400 Units Produced 3100 $ 4 Total $ 232100 based overhead allocation under Activity ba sed costing : Under Activity Costing, Costs are assigned to the activities that are real causes of overhead. It is more logical manner of Overhead lost allocation than the simple costing System where Cost assigned on the basis of machine Hours. It assign the Costs to on products that are actually demanding the activities.

, Product Costing. The Custom The Shirley's custom froming finds the Age Job-costing to be more useful and effective in cost management The five direct costs are more systemetically linked to the activity areas at the plant. It results is more accurate shirley's framing seeking to reduce both the level of activity I fewer þurchase order, less material Handling) and the cost of each activity (such as Costs bey inspection). The shirvey's custom froming can use ABC information to bid for jobs more competitively because ABC provides Shirley's Custom framing with a more accurate reflection of the resources used for and the costs of each sob. Hence, Shirley's custom framing might favor the ABC - Job Costing system over the simple Job-costing system, especially in its bidding process.