Question

Skath Industries manufactures a variety of custom products. Expected usage and costs for manufacturing overhead The company has traditionally used a plantwide activities for the upcoming year are as follows: manufacturing overhead rate based on machine hours to (Click the icon to view the expected usage and costs.) allocate manufacturing overhead to its products. The company estimates that it will incur $1,035,000 in total During the year, Job 352 is started and completed. Usage manufacturing overhead costs in the upcoming year and will for this job follows: Jis 9,000 machine hours. (Click the icon to view the usage for Job 352.) Click the icon to view the additional information about Read the requirements. the hazardous waste disposal fees.)

Answer 1

Answer:

Requirement 1 : Cost of Job 352 using the traditional plantwide mmanufacturing overhead rate based on machine hours

Manufacturing Overhead Rate = Total Manufacturing Overhead/Total Machine Hours = 1035000/9000 = $115 per machine hour

Job Cost Record Job 352	Manufacturing Costs
Direct Materials [320 pounds * $45 per pound]	$14,400
Direct Labor [30 direct labor hours * $15 per labor hour]	$450
Manufacturing Overhead [60 machine hours * $115 per machine hour]	$6,900
Total Job Cost	$21,750

Requirement 2: Cost of Job 352 using Activity Based Costing

(i) Allocation Rate for each activity:

Cost	Formula	Calculation	Allocation Rate
Machine Maintenance Costs	$\frac{Machine Maintenance Costs}{Number of Machine Hours}$	$\frac{90000}{9000}$	$10 per MH
Engineering Change Orders	$\frac{Engineering Change Orders Costs}{Number of Change Orders}$	120000 6000	$20 per order
Hazardous Waste Disposal	$\frac{Hazardous waste Disposal costs}{Pounds of hazardous material generated}$	$\frac{825000}{2500}$	$330 per pound

(ii) Cost of Job 352 using Activity Based Costing:

Job Cost Record Job 352	Manufacturing Costs
Direct Materials [320 pounds * $45 per pound]	$14,400
Direct Labor [30 direct labor hours * $15 per labor hour]	$450
Manufacturing Overhead :-
- Machine Maintenance Costs [60 machine hours * $10 per machine hour]	$600
- Engineering Change Order Costs [12 change orders * $20 per order]	$240
- Hazardous Waste Disposal Costs [50 pounds * $330 per pound]	$16,500
Total Job Cost	$32,190

Requirement 3: Cost Estimate based on Activity Based Costing would provide more useful information.