Question

Inside Out, Company designs custom showroom spaces in interior design marts across the country. The following data pertain to a recent reporting period.

Design Department
Client Consultation 750 contact hours $127.500
Drawing 1.200 design hours 96.000 square feet
Models $15.000 $21,000
Project Management
Supervision 225 days $40,500
Billings 150 jobs $54,000
Required:
A) Use ABC to compute overhead rates for each activity.
B) Assign costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14 days to complete.

Answer 1

A. The overhead rates for each activity using ABC would be as follows:

overhead rate Client Consultation is 170 per Contact Hour

overhead rate Drawing is 80 per Design Hour

overhead rate Models is 1.40 per Square Foot

overhead rate Supervision is 180 per day

overhead rate Billings is 360 per job

B. The Assignment of costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14 days to complete would be as follows:

Assignment of Overhead Costs for Job Client Consultation is $11,900

Assignment of Overhead Costs for Job Drawing is $1,600

Assignment of Overhead Costs for Job Models is $4,200

Assignment of Overhead Costs for Job Supervision is $2,520

Assignment of Overhead Costs for Job Billings is $360

Step-by-step explanation:

A. In order to calculate the overhead rates for each activity using ABC we would have to make the following calculation:

overhead rate Client Consultation=amount/Volume of Allocation Base

overhead rate Client Consultation=$127,500/750=170 per Contact Hour

overhead rate Drawing=$96,000/1,200=80 per Design Hour

overhead rate Models =$21,000/15,000=1.40 per Square Foot

overhead rate Supervision =$40,500/225=180 per day

overhead rate Billings =$54,000/150=360 per job

B. The Assignment of costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14 days to complete would be calculated as follows:

Assignment of Overhead Costs for Job Client Consultation=70 Contact Hours*170=$11,900

Assignment of Overhead Costs for Job Drawing=20 Design Hours*80=$1,600

Assignment of Overhead Costs for Job Models=3,000 Square Feet*1.40=$4,200

Assignment of Overhead Costs for Job Supervision=14 Days*180=$2,520

Assignment of Overhead Costs for Job Billings=1 Job*360=$360