During April, LMN purchased and used $100,000 of direct materials at $20 per ton

Question

During April, LMN purchased and used $100,000 of direct materials at $20 per ton. There were eight (8) production runs using a total of 12,000 machine hours in April. The manager of Department XZ needed 12 inspections. Actual overhead costs totaled $820,000 for the month.

1. How much overhead costs were applied to the Work-in-Process Inventory during April using activity-based costing?

2. How much overhead costs were applied to the Work-in-Process Inventory during April using traditional costing?

Activity Cost Drivers             Rate Material handling Tons of material handled $80 Machine setups Number of production runs $3,750 Utilities Machine hours $25 Quality control Number of inspections $500

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1: Activity-based costing

Overhead costs applied to the Work-in-Process Inventory = 100000/20*80 + 8*3750 + 25*12000 + 500*12 = 736000

Answer is 736000.

Part 2: Traditional costing

Overhead costs applied to the Work-in-Process Inventory = 60*12000 = 72000

Answer is 72000.

Thanks.

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