Question

on 3 (30 points) The job-costing system at the Ale material movement machine mai Jobs. Alexander Fabricating the three maintenance, and other. The company is in the The following information is provided com Material movement costs Budested overhead Machine maintenance $ 490,000 5 770,000 Other S 680.000 Acthy Dee Material moves Machine hours Direct Labor hours Budo DO 1.000 0940,000 REQUIRED Show all Work 1. Compute the manufacturing overhead rate to be used to allocate overhead to each job under a simple costing system, where overhead is allocated based on direct labor hours. 2. Compute the manufacturing overhead rates to be used to allocate overhead to each job under an activity-based costing system using the appropriate cost drivers. 3. Job M13 used 2 material moves, 15 machine hours, and 25 labor hours. a. How much overhead would be allocated under the simple costing system? b. How much overhead would be allocated under the activity based costing system? 4. Explain why Alexander Fabricating might favor the ABC job-costing system over the simple job costing system

Answer 1

Answer with working is given below

Total Overheads Direct labor hours $1,940,000 40,000 $48.50 Per direct labor hour Activity Cost pool Cost Pool Material movement costs Machine maintenance Other Total Overheads Total Activities 7,000 22,000 40,000 Activity Rate $70.00 Per material move $35.00 per machine hour $17.00 per direct labor hour $770,000 $680,000 $1,940,000 | a) Simple Costing system Job M13 $1,212.50(25 labor hours * $48.50) Overhead cost per unit b) Activity Based Costing system Material movement costs Machine maintenance Other Overhead cost per unit Job M13 $140.00 (2 *$70) $525.00 (15 *$35) $425.00 (25 *$17) $1,090.00 4 Traditional costing allocates cost based on single driver But in Activity based costing allocation is based on activities consumed Allocation of overhead as per machine hour method does not correlate the cost with activities consumed ABC method should be used because -It helps in accurate product costing - It helps in Product pricing - It helps in better cost management through cost control and cost reduction

Total Overheads Direct labor hours $1,940,000 40,000 $48.50 Per direct labor hour Activity Cost pool Material movement costs Machine maintenance Other Total Overheads Cost Pool $490,000 $770,000 $680,000 $1,940,000 Total Activities 7,000 22,000 40,000 Activity Rate $70.00 Per material move $35.00 per machine hour $17.00 per direct labor hour | a) Simple Costing system Job M13 $1,212.50(25 labor hours * $48.50) Overhead cost per unit b) Activity Based Costing system Material movement costs Machine maintenance Other Overhead cost per unit Job M13 $140.00 (2 *$70) $525.00 (15 *$35) $425.00 (25 *$17) $1,090.00 4 Traditional costing allocates cost based on single driver But in Activity based costing allocation is based on activities consumed Allocation of overhead as per machine hour method does not correlate the cost with activities consumed ABC method should be used because -It helps in accurate product costing - It helps in Product pricing - It helps in better cost management through cost control and cost reduction