After reading an article about activity-based costing in a trade journal for the

Question

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Overhead has been applied to output at a rate of 40% of direct labor costs. The following data pertain to Job 6.15.

What is the total cost of Job 6.15 if Business Solutions applies overhead at 40% of direct labor cost? (Omit the "$" sign in your response.)

What is the total cost of Job 6.15 if Business Solutions uses activity-based costing? (Do not round your intermediate calculations. Omit the "$" sign in your response.)

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Explanation / Answer

1. Total Cost = Direct material + Direct Labor + Overhead

= $ 2,500 + $ 3,400 + ( $ 3,400 *40%)

= $ 7,260

Hence the correct answer is 7,260

2.

The correct answer is 9,640

Note

1.

2. Total Cost:

  Activity Cost Driver Activity Rate ( Cost / Total Drivers) Activity Cost Allocated ( Activity rate * Activity)   Setting up machines $ 16,280   22 batches 740.00 3.00 2,220.0   Inspecting components $ 4,400   4,400 parts 1.00 400.00 400.0   Providing utilities $ 11,200   5,600 machine hours 2.00 560.00 1,120.0 3,740.0

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