Senkowski Ltd. cost information: Activity-Purchasing, Allocation Base -Purchase
ID: 2365348 • Letter: S
Question
Senkowski Ltd. cost information: Activity-Purchasing, Allocation Base -Purchase orders, Volume of Activity 30,000, Overhead costs $150,000. Activity-Receiving, Allocation base Shipments received, Volume of Activity 15,000, Overhead Cost 60,000. Activity-Machine setups, Allocation Base-Setups, Volume of Activity 2,500, Overhead costs 200,000. Activity- Quality control, Allocation base Inspections, Volume of Activity 18,000, Overhead costs 90,000. Direct materials are $15 per unit for luxury handbags and $11 per unit for deluxe handbags. There were 12, 500 direct labor hours, each of which was charged to inventory at $18 per hour. A. Management is trying to decide between using the traditional allocation method based on direct labor hours and using activity-based costing. Calculate the overhead rates for each method. B. One particular batch of 40 luxury handbags had the following specifications: direct labor hours 8, purchase orders 4, shipments received 3, setups 2, inspections 12. Calculate the overhead to be allocated to the bags under the traditional and activity-based costing techniques. C.Which costing method do you think is better for the company? Why?Explanation / Answer
Purchasing
150000
30000
5.00
Receiving
60000
15000
4.00
Machine Setups
200000
2500
80.00
Quality Control
90000
18000
5.00
Total OH = 150000+60000+90000 = 300000
Total Labor Hours = 12500
OH Rate as per Direct Labor Hour Rate = 24.00
Total = Materials + Labor + Others
=600+ (8*18)+(8*24) =600+144+192 = 936
Under Activity Based:
Direct Material
40*15
600
Direct Labor
8*18
144
Purchase Orders
4*5
20
Shipments Received
3*4
12
Setups
2*80
160
Inspections
12*5
60
Total
996
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Purchasing
150000
30000
5.00
Receiving
60000
15000
4.00
Machine Setups
200000
2500
80.00
Quality Control
90000
18000
5.00
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