Question

Cormwell Products has adopted an ABC costing system. The following manufacturing activities, indirect manufacturing costs, and cost drivers have been identified: The Job Cost Record for Job #804 revealed that direct materials requisitioned forthe job totaled $1,250. The Job Cost Record also showed that direct labor for this job totaled 12 hours at a wage rate of $30 per hour. Total estimated Total estimated amount Activit l costs related of allocation base activity to activity $180,000 2,000 setups 2000 Machine setup Machining Polishing Quality control Facility-level costs Total manufacturing overhead (MOH) S1,050,000 $100,000 $320,000 $150,000 $1,800,000 12,000 machine hours 5,000 polishing cloths Do 4.000 tests run 320.ooo 50,000 DL hours iso,000 Other data collected on the resources used by Job #804 included: AC Hlocat, on Pro A Act use lea 90 S 2S cIRat l machine setup required 9x0macket sebap $go 6 machine hours -x 87.S $29 4 polishing cloths Hx 20o 3 quality control tests run 3x go 있uo aahtint. I q。tesawj 20 240 Requirements s 93s I Calculate the activity cost allocation rate for each of the five pools listed in the table. 2"/Calculate the total cost of Job #804 (use an ABC costing system). 3. Why would ABC provide a more accurate allocation of manufacturing overhead (MOH) than a plantwide rate? Assume that Cornwell Products used a traditional costing system rather than an ABC system. Its plantwide MOH rate would have been determined using direct labor (DL) hours as the allocation base. How much cost distortion would have occurred on this job? 4.

Answer 1

allocation base quantity activityactivity activity 1) activity activity cost allocation rate base for cost of job overheads 180000 1050000 100000 320000 150000 1800000 job 804 804 machine set up machining polishing quality control facility level costs Total manufacturing overheads 2000 90 per set up 90 525 80 240 36 971 1200087.5 per machine hour 6 4 5000 4000 50000 80 per test run 3 per DL hour 12 Total overhead cost direct material direct labor (12 hours x 30 Manufacturing overhead cost Total cost of job 804 1250 360 971 2581 3) ABC Provides more accurate allocation as total overheads are classified in various activities costs, and allocation rate is different and more appropriate for each activity as compared to traditional plantwise overhead rate 4) traditional plantwide rate total overheads/total direct labor hours direct material direct labor (12 hours x 30) Manufacturing overhead cost Total cost of job 804 1800000/50000 $36 per DL 1250 360 432 12 X 36 2042