The 195 Factory produces replacement parts and assemblies for vintage Cessna air
ID: 2569474 • Letter: T
Question
The 195 Factory produces replacement parts and assemblies for vintage Cessna aircraft. The company is considering replacing its current costing system with an activity-based approach. It has identified three activities: computer-aided design; fabrication; and assembly and finishing. Data regarding these activities has been collected in the table below.
(A) What is the activity cost rate for the computer-aided design activity?
(B) Two jobs are currently complete and ready for delivery to the customer. One is a wing assembly that required raw materials costing $5,000 and consumed 40 hours of direct labor time. The wing assembly is a standard product that required only one hour of CAD time and three hours of machine time. What amount of overhead would the proposed activity-based costing system assign to this job?
Activity Driver Driver Frequency Activity Cost Computer-aided design (CAD) (CAD) hours 2,000 $1,000,000 Fabricating Machine hours 2,000 $600,000 Assembly and finishing Labor hours 8,000 $400,000Explanation / Answer
(A) What is the activity cost rate for the computer-aided design activity?
Ans
Activity
Driver
Driver Frequency
Activity Cost
Activity rate
(A)
(B)
(C=A/B)
Computer-aided design (CAD)
(CAD) hours
2,000
$1,000,000
$500
Fabricating
Machine hours
2,000
$600,000
$300
Assembly and finishing
Labour hours
8,000
$400,000
$50
Ans
Calculation of overhead allocation based on ABC costing.
Activity
Driver
Driver Frequency
Activity rate
Activity rate
(A)
(B)
(C=A/B)
Computer-aided design (CAD)
(CAD) hours
1
$500
$500
Fabricating
Machine hours
3
$300
$900
Assembly and finishing
Labour hours
40
$50
$2,000
Total
$3,400
Ans
Total Overheads allocated based on ABC costing = $3,400
(A) What is the activity cost rate for the computer-aided design activity?
Ans
Activity
Driver
Driver Frequency
Activity Cost
Activity rate
(A)
(B)
(C=A/B)
Computer-aided design (CAD)
(CAD) hours
2,000
$1,000,000
$500
Fabricating
Machine hours
2,000
$600,000
$300
Assembly and finishing
Labour hours
8,000
$400,000
$50
Ans
Calculation of overhead allocation based on ABC costing.
Activity
Driver
Driver Frequency
Activity rate
Activity rate
(A)
(B)
(C=A/B)
Computer-aided design (CAD)
(CAD) hours
1
$500
$500
Fabricating
Machine hours
3
$300
$900
Assembly and finishing
Labour hours
40
$50
$2,000
Total
$3,400
Ans
Total Overheads allocated based on ABC costing = $3,400
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