Question

The following data regarding the activity-based costing system at the Company Co. is available: Base Activity Pool Machine set Budgeted Activity 2839 Budgeted Cost $23322 of setups up Orders Shipping # of orders Hours of shipping time 968 2121 $88985 $40914 In addition, prior to adopting an activity based costing system. Company Co, applied Overhead based on direct labour hours. The budgeted total labour hours for the year was 46474 If one job required 400 direct labour hours, 42 setups, 50 orders, and 23 hours of shipping time what is the difference between the overhead assigned using the traditional method and ABC Select one: O a. 54066 b. $3397 $1319 d. 55385

Answer 1

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Company Co.
Calculation of Total overhead	Amount $	Note
Machine set up	23,322.00
Orders	88,995.00
Shipping	40,914.00
Total overhead	153,231.00	B
Calculation of Predetermined OH Rate	Amount $	Note
Total Labor Hours	46,474.00	A
Total Manufacturing overhead	153,231.00	See B
Predetermined OH Rate	3.3	C=B/A
Allocated OH to JOB	Amount $
Total Labor Hours	400.00	D
Predetermined OH Rate	3.30	See C
Allocated OH	1,319.00	E=C*D
Calculation of ABC rates for overhead		L	M	N=L/M
Activity cost pool	Cost Driver	Cost	Activity	ABC rates
Machine set up	Number of set ups	23,322.00	2,839.00	8.21
Orders	Number of orders	88,995.00	968.00	91.94
Shipping	Hours of shipping time	40,914.00	2,121.00	19.29
Total Cost assigned		153,231.00
Allocation table		See N	O	P=N*O
Activity cost pool	Activity Measure	ABC Rates	Activity used	Cost assigned
Machine set up	Number of set ups	8.21	42.00	345.02
Orders	Number of orders	91.94	50.00	4,596.85
Shipping	Hours of shipping time	19.29	23.00	443.67
Total Cost assigned				5,385.00
Allocated OH under ABC	5,385.00	See U
Allocated OH under traditional method	1,319.00	See E
Difference	4,066.00
So difference is $ 4,066.
Answer is option A.