Solution-Discuss the merits of an activity-based costing

Discuss the merits of an activity-based costing system

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Reference no: EM13493305

The controller for Wolfe Machining has established the following overhead cost pools and cost drivers:

	Overhead Cost Pool	Budgeted Overhead Cost	Cost Driver
	Machine setups	$240,000	Number of setups
	Material handling	90,000	Units of raw material
	Quality control inspection	48,000	Number of inspections
	Other overhead costs	160,000	Machine hours
	Total	$538,000

	Overhead Cost Pool	Budgeted Level for Cost Driver	Overhead Rate
	Machine setups	200 setups	$1,200 per setup
	Material handling	60,000 units	$1.50 per unit
	Quality control	1,200 inspections	$40 per inspection
	Other overhead	20,000 machine hours	$8 per machine hour
Order no. 715 has the following production requirements:
Machine setups: 7
Raw material: 11,200 units
Inspections: 16
Machine hours: 850

Required:

A. Compute the total overhead that should be assigned to order no. 715 by using activity-based costing.

B. Suppose that Wolfe were to use a single, predetermined overhead rate based on machine hours. Compute the predetermined overhead rate per hour and the total overhead assigned to order no. 715.

C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.

Reference no: EM13493305

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Discuss the merits of an activity-based costing system

Reference no: EM13493305

Reference no: EM13493305

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