Question : 76. The following overhead cost information available for Millennium Inc. for : 1291683

 

76. The following overhead cost information is available for Millennium Inc. for 2011: 

Activity

Allocation Base

Overhead Cost

Purchasing

Number of purchase orders

$450,000

Machine setups

Number of setups

  180,000

Quality control

Number of inspections

    80,000

 

 

 

During the year, 7,500 purchase orders were issued; 18,000 machine setups were performed; and 3,000 inspections were conducted.Required: 

A.

Calculate the overhead rates for each of the three activities.

 

 

B.

If a particular job requires 16 purchase orders, 8 setups, and 10 inspections to fill, how much overhead should be applied to the job?

 

 

 

 

 

77. The following overhead cost information is available for Lowman Inc. for 2008: 

Activity

Allocation Base

Overhead Cost

Purchasing

Number of purchase orders

$200,000

Machine setups

Number of setups

    80,000

Quality control

Number of inspections

    60,000

 

 

 

During the year, 2,000 purchase orders were issued; 500 machine setups were performed; and 1,500 inspections were conducted.Required: 

A.

Calculate the overhead rates for each of the three activities.

 

 

B.

If a particular job requires 8 purchase orders, 3 setups, and 4 inspections to fill, how much overhead should be applied to the job?

 

 

 

 

 

78. Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $600,000 in overhead costs when a total of 10,000 direct labor hours were incurred. After implementing activity-based costing (ABC), the company’s accountant identified the following related information: 

 

 

Proportion of

Activity

Allocation Base

Overhead Cost

Material delivery and handling

Number of deliveries

30%

Inspections

Number of inspections

25%

Supervision

Hours of supervisor time

20%

Purchasing

Number of purchase orders

25%

 

 

 

The number of activities for standard and custom-made cabinets is as follows: 

 

Standard

 

Custom-made

Number of deliveries

500

 

700

Number of inspections

600

 

400

Hours of supervisor time

1,000

 

2,000

Number of purchase orders

800

 

400

 

 

 

 

During the past year, Thurman accepted a customer order for a set of custom-made cabinets that would require the following: 

Direct labor hours

45

Number of deliveries

4

Number of inspections

5

Hours of supervisor time

2

Number of purchase orders

4

 

 

Required: 

A.

How much overhead would be applied to the job if traditional costing using direct labor hours as the cost driver were used?

 

 

B.

Using activity-based costing (ABC), what would be the overhead rate for each of the four activities?

 

 

C.

Using activity-based costing (ABC), what would be the total overhead applied to the above job?

 

 

D.

Compare the overhead applied using traditional costing to ABC costing and remark on the difference. Which one do you think is more accurate?