Washington Fabricators completed two jobs in June. Washington Fabricators record
ID: 2491179 • Letter: W
Question
Washington Fabricators completed two jobs in June. Washington Fabricators recorded the following costs assigned to the jobs by the company's activity-based costing system: (Click the icon to view the costs.) Job 622 required 3.000 parts, 55,000 lathe turns, and 1, 200 machine hours. All 400 of the job's output units were tested. All units of Job 409 were tested. Requirements How do you know that at least one of the costs recorded for the two jobs is inaccurate? Disregard materials handling costs. How many parts were used for Job 409? How many lathe turns did Job 409 require? How many machine hours? How many units were produced in Job 409? A nearby company has offered to test all product units for $9 each. On the basis of ABC data, should Washington Fabricators accept or reject the offer? Give your reason. The materials handling cost ratio is, but the grinding cost ratio is. Job 622 cannot have times as many parts as Job 409 and times as many parts simultaneously. Requirement 2. Disregard materials handling costs. How many parts were used for Job 409? How many lathe turns did Job 409 require? How many machine hours? How many units were produced in Job 409? Begin by determining the allocation rate for each of the four activities. Identify the formula, then compute the rate for each activity. (Round your answers to two decimal places.) The second step is to use the cost allocation rate for each activity to determine the quantity of the allocation base Job 409 used. Requirement 3. A nearby company has offered to test all product units for $9 each. On the basis of ABC data, should Washington Fabricators accept or reject the offer? Give your reason. Based on the ABC information, Washington the company's offer to test units for $9 each. Washington's cost of performing this activity is $ per unit.Explanation / Answer
Answer: Requirement 1:
Either the materials handling cost or the grinding cost is inaccurate. Both costs were assigned based on the number of parts. Thus, the ratio of Job 409 materials handling cost to Job 622 materials handling cost should be the same as the ratio of Job 409 grinding cost to Job 622 grinding cost. The materials handling cost ratio is 1:3 ($400 to $1,200), but the grinding cost ratio is 1:5 ($300 to $1,500). Job 622 cannot have three times as many parts as Job 409 and five times as many parts simultaneously.
Answer: Requirement 2:
Answer: Requirement 3:
Based on the ABC information, washington should not accept the company's offer to test units for $9 each. Washington's cost of performing this activity is only $7.25per unit ($2,900/ 400 units tested for Job 622).
Job 622 Divide by Qty of the cost Cost Allocation Activity Activity cost Allocation base Rate Lathe Work 17600 55000 0.32 /turn Milling 30000 1200 25 / mach hours Grinding 1500 3000 0.5 / part Testing 2900 400 7.25 / units Job 409 Divide by cost Qty of the Allocation Activity Activity cost Allcation rate Base Lathe Work 7000 0.32 21875 Turns Milling 3900 25 156 Hours Grinding 300 0.5 600 Parts Testing 145 7.25 20 UnitsRelated Questions
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