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?
