Sidney Industries manufactures a variety of custom products. The company has tra

Question

Sidney Industries manufactures a variety of custom products. The company has traditionaly used a plantwide manufacturing overhead rate based on machine hours to allocabe mandfacturing overbead to its E(Click the ioon to view the expected usage and cos products. The company estimates that it will incur $810,000 in total manufacturing overhead costs in the upcoming year and will use 15,000 machine hours Expected usage and costs rardacining overhead acti taser-upcemg year " Duing the year, Job 354 is started and completed. Usage for this job follows Cick the ioon to view the additional information about the hazandous waste disposal Sees) (Click the Read the recuiremens icon to view the usage for Job 354) Requirement 1. Calculate the cost of Job 354 using the traditional plantwide manufacturing overtheed rate based on machine houn Begin by calouialing the plantwide overhead rake. First idenoity the formula used to ompuies the plantwide overhead rate, then compute the rate.(Ableiations used: MOHs manufacturing overheed,m Plantwide mig overhead ratie Data Table Data Table Essimated Activity for this Year 250 pounds of direct materials at $40 per pound 80 direct labor hours used at $25 per labor hour 60 machine hours used 8 change orders 90 pounds of hazardous waste generated Description of Cost Pool Machine maintenance co Engineering change ordens Hazardous waste disposal Total overhead cost Estmated Cost Cost Driver 00,000 Number ofl machine hours 160,000 Number of change orders 350,000 Pounds of hazandous materials generated 810,000 15000 2,000 ,000 Print Done Print Done

Explanation / Answer

Plantwide manufacturing overhead rates:-

Plantwide manufactirung overhead rate = 810,000/15,000

= $54 per hour

For ABC Costing,

Machine Overhead rate = Machine manufacturing cost/Machine Hours

= 300,000/15,000

= $20 per hour

Engineering Change order cost = 160000/2000

= $80 per order

Hazardous waste disposal cost = 350000/1000

= 350 per pound

1) Cost of Job 354 based on machine hours

Direct Material - 10000 (250*40)

Direct Labour - 2000 (80*25)

Manufacturing overhead = 3240 (60*54)

Total Cost = 15,240 (information for number of hours required for change activty and to remove hazardous waste is not available in the question)

2) Cost of Job 354 based on activity based costing

Direct Material - 10000 (250*40)

Direct Labour - 2000 (80*25)

Machine Cost - 1200 (60*20)

Change order cost - 640 (8*80)

Hazardous waste disposal - 31,500

Total Cost = 45,340

3) I would use the activity based costing method. This is because we can get to know the cost of each activity very prescisely using ABC costing. This information will be very useful for internal reportings, decision making, cost reduction etc.

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