Question

Applying activity-based costing LO P1, P3, A1, A2, C3 [The following information applies to the questions displayed below.] Craft Pro Machining produces machine tools for the construction industry. The following details about overhead costs were taken from its company records. Production Activity Indirect Labor Indirect Materials Other Overhead Grinding $ 320,000 Polishing $ 135,000 Product modification 600,000 Providing power $ 255,000 System calibration 500,000 Additional information on the drivers for its production activities follows. Grinding 13,000 machine hours Polishing 13,000 machine hours Product modification 1,500 engineering hours Providing power 17,000 direct labor hours System calibration 400 batches Job 3175 Job 4286 Number of units 200 units 2,500 units Machine hours 550 MH 5,500 MH Engineering hours 26 eng.hours 32 eng.hours Batches 30 batches 90 batches Direct labor hours 500 DLH 4,375 DLH. Compute the activity overhead rates using ABC. Form cost pools as appropriate. Determine overhead costs to assign to the following jobs using ABC. What is the overhead cost per unit for Job 3175? What is the overhead cost per unit for Job 4286?

Answer 1

Craft Pro Machining

Activity Rate= Activity Cos/ Cost Driver

Production Activities Cost Drivers Activity Rate

Grinding $ 320,000 13,000 machine hours 24.615per machine hour

Polishing $ 135,000 13,000 machine hours 10.38 per ,machine hour

Product modification 600,000 1,500 engineering hours 400 per eng. hour

Providing power $ 255,000 17,000 direct labor hours 15 per DLH

System calibration 500,000 400 batches 1250 per batch

Working:

Job 3175 Job 4286

Number of units 200 units 2,500 units

Machine hours 550 MH 5,500 MH

Engineering hours 26 eng.hours 32 eng.hours

Batches 30 batches 90 batches

Direct labor hours 500 DLH 4,375 DLH

Job 3175 Job 4286

Number of units 200 units 2,500 units

Grinding & Polishing 19247.25 192472.5

Product modification 10400 12800

System calibration 37500 112500

Providing power 7500 65625

Total Costs $ 74,647.25 $ 383,397.5

The overhead cost per unit for Job 3175 = $ 74,647.25 /200=$ 373.24

The overhead cost per unit for Job 4286= $ 383,397.5/2,500= $ 153.36