Serial Problem Business Solutions
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, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.
|
Activity
|
Cost
|
Driver
|
|
Setting up machinfes
|
$26,700
|
30 batches
|
|
Inspecting components
|
$4,600
|
4,600 parts
|
|
Providing utilities
|
$9,200
|
4,600 machine hours
|
Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615.
|
Direct materials
|
$2,200
|
|
Direct labor
|
$3,100
|
|
Batches
|
5 batches
|
|
Number of parts
|
460 parts
|
|
Machine hours
|
550 machine hours
|
Required:
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
2. What is the total cost of Job 615 if Business Solutions applies overhead at 50% of direct labor cost?
3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?