Question: Isadore's Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data:
|
|
|
|
|
Cost Driver Volume |
| Activity |
Cost Driver |
Cost |
Pencils |
Pens |
| Setting up |
Number of setups |
$ |
72,000 |
|
20 |
30 |
| Inspecting |
Number of parts |
|
21,600 |
|
4 |
6 |
| Packing and shipping |
Number of boxes shipped |
|
43,200 |
|
45,000 |
75,000 |
| Total overhead |
|
$ |
136,800 |
|
|
|
|
Required: a. Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.)
Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:
| Activity Centers |
Cost Drivers |
Rate per
Cost Driver Unit |
| Materials handling |
Pounds of material handled |
$ |
36 |
per pound |
| Quality inspections |
Number of inspections |
$ |
450 |
per inspection |
| Machine setups |
Number of machine setups |
$ |
5,400 |
per setup |
| Running machines |
Number of machine-hours |
$ |
45 |
per hour |
|
Direct materials costs were $600,000 and direct labor costs were $300,000 during July, when the Fabrication Department handled 3,000 pounds of materials, made 500 inspections, had 25 setups, and ran the machines for 10,000 hours.
Required: Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory.