Question

Vermillion Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Vermillion worked on two jobs in June. Data are as follows:

Job 56 Job 55
Balance, 6/1 $32,000 $45,000
Direct materials 26,000 28,000
Direct labor 30,000 32,000
Engineering design 900 1,200
Purchasing 1,600 1,750
Other overhead 14,525 16,250

Which of the following would be true if Job 56 required no engineering hours?
a. The engineering applied to job 56 would increase by $900.
b. The engineering applied to Job 55 would increase by $900.
c. The engineering applied to Job 55 would be zero, and the cost of Job 55 would decrease by $900.
d. The engineering applied to Job 56 would be zero, and the cost of Job 56 would decrease by $900.

Answer 1

If Job 56 required no engineering hours, the engineering cost applied to it would be zero and the cost of Job 56 would decrease by $900.

Step-by-step explanation:

The student's question pertains to a scenario where Vermillion Company, a job-order costing firm, is applying activity-based costing to its jobs. In the given scenario, Job 56 has engineering design costs of $900 recorded against it. However, if Job 56 required no engineering hours, the engineering cost applied to Job 56 would indeed be zero, and thus, the cost allocated to Job 56 would decrease by $900.

The correct answer to the question is:

• The engineering applied to Job 56 would be zero, and the cost of Job 56 would decrease by $900.