Question

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 machinfes	$	17,800		20	batches
Inspecting components	$	4,900		4,900	parts
Providing utilities	$	9,800		4,900	machine hours

Overhead has been applied to output at a rate of 60% of direct labor costs. The following data pertain to Job 615.

Direct materials	$	2,500
Direct labor	$	3,500
Batches		7	batches
Number of parts		410	parts
Machine hours		540	machine hours

Required:
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
  

Answer 1

Classification of its three overhead activities given below:

1	Setting up machines	=	Batch Level
2	Inspection components	=	Unit Level
3	Providing utilities	=	Facility Level

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