Question

Calculating Activity-Based Costing Overhead Rates
Assume that manufacturing overhead for Glassman Company consisted of the following activities and costs:

Setup (1,000 setup hours)	$160,000
Production scheduling (400 batches)	76,000
Production engineering (60 change orders)	120,000
Supervision (2,000 direct labor hours)	56,000
Machine maintenance (12,000 machine hours)	84,000
Total activity costs	$496,000

The following additional data were provided for Job 845

Direct materials costs	$11,000
Direct labor cost (5 Milling direct labor hours;
35 Finishing direct labor hours)	$5,000
Setup hours	5 hours
Production scheduling	1 batch
Machine hours used (25 Milling machine hours;
5 Finishing machine hours)	30 hours
Production engineering	3 change orders

a. Calculate the cost per unit of activity driver for each activity cost category.

Setup	Answer Mark 0.00 out of 1.00 per setup hour
Production scheduling cost	Answer Mark 0.00 out of 1.00 per batch
Production engineering cost	Answer Mark 0.00 out of 1.00 per change
Supervision cost	Answer Mark 0.00 out of 1.00 per direct labor hour
Machine operating cost	Answer Mark 0.00 out of 1.00 per machine hour

b. Calculate the cost of Job 845 using ABC to assign the overhead costs.

Job 845
Direct materials cost	Answer Mark 0.00 out of 1.00
Direct labor cost	Answer Mark 0.00 out of 1.00
Manufacturing overhead costs:
Setup costs	Answer Mark 0.00 out of 1.00
Production scheduling	Answer Mark 0.00 out of 1.00
Production engineering	Answer Mark 0.00 out of 1.00
Supervision	Answer Mark 0.00 out of 1.00
Machine operations	Answer Mark 0.00 out of 1.00
Total cost	Answer Mark 0.00 out of 1.00

c. Calculate the cost of Job 845 using a company-wide overhead rate based on machine hours.

First, compute company-wide overhead rate using machine hours (Note: Information needed for this computation can be found in the table below in part d.)
Round rate to two decimal places.
$Answer

Mark 0.00 out of 1.00

per machine hour

Next, use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed.

Job 845
Direct materials cost	Answer Mark 0.00 out of 1.00
Direct labor cost	Answer Mark 0.00 out of 1.00
Manufacturing overhead cost:	Answer Mark 0.00 out of 1.00
Total cost	Answer Mark 0.00 out of 1.00

d. Calculate the cost of Job 845 using a machine hour departmental overhead rate for the Milling Department and a direct labor hour overhead rate for the Finishing Department.

Milling Department manufacturing overhead	$360,000
Finishing Department manufacturing overhead	$136,000
Machine hours used
Milling Department	10,000 hours
Finishing Department	2,000 hours
Labor hours used
Milling Department	1,000 hours
Finishing Department	1,000 hours

Round rates to two decimal places, if needed.
$Answer

Mark 0.00 out of 1.00

per Milling Dept. machine hour
$Answer

Mark 0.00 out of 1.00

per Finishing Dept. direct labor hour

Use rounded overhead rates calculated above for calculations below. Round cost answers to the nearest whole number, when needed.

Job 845
Direct materials cost	Answer Mark 0.00 out of 1.00
Direct labor cost	Answer Mark 0.00 out of 1.00
Manufacturing overhead costs:
Milling Department	Answer Mark 0.00 out of 1.00
Finishing Department	Answer Mark 0.00 out of 1.00
Total cost	Answer Mark 0.00 out of 1.00

Answer 1

Answer to Question a:

Question a Calculation of activity rates Activity Calculation Cost Activity Cost Drivers Activity rate Per 160,000 1,000 setups 76,000 400 Batches 160.00 Setup 190.00 Per Batch Per Change 2,000.00 Order (160,000/1,000) (76,000/400) $ $ Setups Production Scheduling $ $ Production Engineering $ 120,000 60 Change Orders $ (120,000/60) Per Direct |(56,000/2,000) Supervision 56,000 2,000 Direct Labor Hour 28.00 Labor Hour $ Per Maintenance Machine Maintenance Total Overheads 84,000 12,000 Machine Hours 7.00 Hour (84,000/12,000) $ $ 496,000

Answer to Question b:

Question b Job 845 $ Direct Material 11,000 5,000 $ Direct Labor $ Setups 800 ($160 X 5) $ Calculation Production Scheduling 190 ($190 X 1) $ Calculation Production Engineering Calculation Supervision 6,000 ($2000 X 3) $ 1,120 ($28 X 40) Calculation Machine Maintenance 210 ($7 X 30) $ Calculation Total Cost 24,320 ($11,000 $5,000 $800$190 $6,000 +$1,120 $210) Calculation

Answer to Question c:

Question c Calculation of Overhead Rate Total Overheads/Machine Hours Calculation of Overhead Rate $496,000/12,000 Calculation of Overhead Rate $ 41.33333 per machine hour Overhead Cost Overhead Rate X Total Machine Hours Calculation Job 845 Direct Material Direct Labor $ 11,000 5,000 $ Manufacturing Overhead Cost 1,240 ($41.33333 X 30) $ Total Cost $ 17,240

Answer to Question d:

Question d Milling Department: Calculation of Overhead Rate for Milling Department Total Overheads of Milling Department/Machine Hours of Milling Department Calculation of Overhead Rate $360,000/10,000 Calculation of Overhead Rate= $36 per Milling Dept. machine hour Finishing Department Calculation of Overhead Rate for Milling Department Total Overheads of Finishing Department/Direct Labor Hours of Finishing Department Calculation of Overhead Rate = $136,000/1,000 Calculation of Overhead Rate $136 per Finishing Dept. labor hours Finishing Cost = Rate per Direct Labor X Finishing Direct Hours Milling Cost Rate per Machine Labor X Milling Machine Hours Job 845 Calculation Direct Material $ 11,000 $ Direct Labor Cost 5,000 Manufacturing Overheads: Finishing Department $ 4,760 ($136 X 35) 900 ($36 X 25) Milling Department $ $ Total Cost 21,660