Hurley Corporation has identified the following overhead costs and cost drivers

Question

Hurley Corporation has identified the following overhead costs and cost drivers for the coming year:


Overhead item Cost Driver Budgeted Cost Budgeted Activity Level

Machine setup Number of setups $20,000 200
Inspection Number of inspections $130,000 6,500
Material handling Number of material moves $80,000 8,000
Engineering Engineering hours $50,000 1,000
$280,000

The following information was collected on three jobs that were completed during the year:

JOB 101 JOB 102 JOB 103
Direct material $5,000 $12,000 $8,000
Direct labor $2,000 $2,000 $4,000
Units completed 100 50 200
Number of setups 01 02 04
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10


Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000.
a. If the company uses activity-based costing, how much overhead cost should be assigned to Job 101?

Explanation / Answer

If the company uses activity-based costing, how much overhead cost should be assigned to Job 101?

ANSWER:

Machine setup: $20000/200 x 1 = $100
Inspection: $130000/6500 x 20 = $400
Material handling: $80000/8000 x 30 = $300
Engineering: $50000/1000 x 10 = $500

Total Overhead cost = 100 + 400 + 300 + 500 = $1300

Hope this helps!

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