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Q11E

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Financial & Managerial Accounting
Found in: Page 793
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

The following is taken from Ronda Co.’s internal records of its factory with two production departments. The cost driver for indirect labor and supplies is direct labor costs, and the cost driver for the remaining overhead items is number of hours of machine use. Compute the total amount of overhead cost allocated to Department 1 using activity-based costing.

Direct Labor Machine Use Hours

Department 1 ……………… $18,800 2,000

Department 2 ……………… 13,200 1,200

Totals ……………………….. $32,000 3,200

Factory overhead costs

Rent and utilities …………………………………….. $12,200

Indirect labor ………………………………………..... 5,400

General office expense ……………………………... 4,000

Depreciation — Equipment ………………………….. 3,000

Supplies ……………………………………………….. 2,600

Total factory overhead ……………………………… $27,200

Answer

Total Overhead Cost for Department 1: $16,700

See the step by step solution

Step by Step Solution

Step 1: Indirect Labor & Supplies cost for Department 1


Step 2: Other Overhead cost for Department 1

Step 3: Total Overhead Cost for Department 1

Most popular questions for Business-studies Textbooks

Ryan Foods produces gourmet gift baskets that it distributes online as well as from its small retail store. The following details about overhead costs are taken from its records.

Production Activity Indirect Labor Indirect Materials Other Overhead

Wrapping …………… $300,000 $200,000

Assembling ………… 400,000

Product design …….. 180,000

Quality inspection …. 100,000

Cooking ……………… 150,000 120,000

Additional information on the drivers for its production activities follows.

Wrapping ……………………………………………….... 100,000 units

Assembling ……………………………………………… 20,000 direct labor hours

Product design ………………………………………….. 3,000 design hours

Quality inspection ………………………………………. 20,000 direct labor hours

Cooking …………………………………………………… 1,000 batches

Required

1. Classify each activity as unit level, batch level, product level, or facility level.

2. Compute the activity overhead rates using ABC. Combine the assembling and quality inspection activities into a single cost pool.

3. Determine the overhead costs to assign to the following jobs using ABC.

Holiday Basket Executive Basket

Number of units ……………………… 8,000 units 1,000 units

Direct labor hours …………………… 2,000 DLH 500 DLH

Design hours …………………………. 40 design hours 40 design hours

Batches ………………………………... 80 batches 200 batches

4. What is the overhead cost per unit for the Holiday Basket? What is the overhead cost per unit for the Executive Basket?

5. If the company used a plantwide overhead rate based on direct labor hours, what is the overhead cost for each Holiday Basket unit? What would be the overhead cost for each Executive Basket unit if a single plantwide overhead rate were used?

6. Compare the costs per unit computed in requirements 4 and 5 for each job. Which cost assignment method provides the most accurate cost? Explain.

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