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 50% if direct labor costs. The following data pertain to Job 6.15.
Questions:
1. What is the total cost of Job 6.15 if Business Solutions applies overhead at 50% of direct labor cost?
2. What is the total cost of job 6.15 is Business Solutions uses activity based costing?
3. Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15? Explain.