Reference no: EM132830227
Problem - Planet Earth Company manufactures mini rocket ships. The company currently uses a plant-wide overhead rate (traditional method) based on direct labour hours to allocate manufacturing overhead to individual jobs. It estimates to incur 100,000 direct labour hours this year and expects manufacturing overhead to be $3,900,000. However, the owner and CEO is considering using activity-based costing to allocate manufacturing overhead. She has identified four activities that incur or drive manufacturing costs: inspections, material handling, set-ups and engineering designs. The budgeted activity costs for the upcoming year and the allocation bases are as follows:
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Activity
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Budgeted MOH costs
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Allocation base
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Estimated Volume of allocation base
|
|
Inspections
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$800,000
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# inspections
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100 inspections
|
|
Material handling
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$500,000
|
# moves
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250 moves
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|
Set-ups
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$600,000
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# set-ups
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20 set ups
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|
Engineering designs
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$2,000,000
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# engineering hours
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50,000 engineering hours
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Job #007 Apollo - used 20 inspections, 50 moves, 5 set ups, 10,000 engineering hours and 30,000 direct labour hours.
Job # 510 Mars - used 25 inspections, 65 moves, 12 set ups, 15,000 engineering hours and 35,000 direct labour hours.
Required -
1. Using the traditional method of cost allocation determine the manufacturing overhead that will be allocated to Job #007 Apollo and Job # 510 Mars.
2. Using activity based costing compute the activity rate for each activity.
3. Using activity based costing compute the MOH cost that will be allocated to Job #007- Apollo.
4. Using activity based costing compute the MOH cost that will be allocated to Job # 510 -Mars.