Reference no: EM132845368
Question - Alexander Custom Furniture has five indirect-cost pools (purchasing, material handling, machine maintenance, product inspection and packaging). The company is in the process of bidding on two jobs:
1) Job 0802: an order of 15 intricate personalised furniture.
2) Job 2408: an order of 6 standard personalised furniture.
The controller wants you to compare overhead allocated under the simple job-costing system and newly designed activity-based job-costing system. Total budgeted costs in each indirect-cost pool and the budgeted quantity of activity driver are as follows:
Budgeted Overhead Activity Driver Budgeted Quantity of Activity Driver
Purchasing $70,000
Purchase orders processed 4,000
Material handling $87,500
Material moves 10,000
Machine maintenance $237,300
Machine-hours 21,000
Product inspection $18,900
Inspections 3,780
Packaging $39,900
Units produced 7,980
$453,600
Information related to Job 0802 and Job 2408 follows. Job 0802 incurs more batch-level costs because it uses more types of materials that need to be purchased, moved and inspected relative to Job 2408.
Job 0802 Job 2408
Number of purchase orders 25 8
Number of material moves 10 4
Machine-hours 40 60
Number of inspections 9 3
Units produced 15 6
REQUIRED -
A) Determine the overhead rate and the total amount of overhead costs allocated to Job 0802 under a simple costing system, where overhead is allocated based on machine-hours.
B) Determine the overhead rate and the total amount of overhead costs allocated to Job 2408 under an activity-based costing system using the appropriate activity drivers.