Question 1. Vex Corporation manufactures a variety of products. In the past, Vex had been using a traditional overhead allocation system based on machine-hours. For the current year, Vex decided to switch to an activity-based costing system using machine-hours and the number of inspections as measures of activity. Information on these measures of activity and related overhead rates for the current year are as follows:
Estimated Activity Predetermined Overhead Rate
Machine-hours ............... 50,000 $8 per machine-hour
Number of inspections ... 3,000 $40 per inspection
Job #812 for the current year required 15 machine-hours and 2 inspections. Would th s job
have been overcosted or undercosted under the traditional system and by how much?
Question 2. What is the amount of direct materials cost in the August 31st Work in process inventory account.
Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct labor cost. During August, the following transactions were recorded by the company:
Raw materials (all direct materials):
Purchased during the month ........................................................ $30,000
Used in production ........................................................................ $31,000
Labor:
Direct labor hours worked during the month .............. 3,000
Direct labor cost incurred ............................................................. $27,000
Indirect labor cost incurred ............................................................. $6,000
Manufacturing overhead costs incurred (total) ........... $19,000
Inventories:
Raw materials (all direct) August 31 ........................ $8,000
Work in process, August 1 ............................................................. $7,600
Work in process, August 31* ................................. $15,000
*contains $6,000 of direct labor cost