Question

QUESTION 1 Johnstone Company manufactures two products, Board 12 and Case 165. Johnstone's overhead costs consist of setting up machines, $1,200,000, machining $2,700,000; and inspecting, $900,000. Information on the two products is: Board 12 Case 165 Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Case 165 using activity based costing is $1,920,000 $2,304,000 $2,496,000. $3,000,000

Answer 1

Answer)

Calculation of Overhead applied to Case 165 using Activity – based costing

Activity Centre	Activity Base	Activity Rate (In $)	Total number of Activities consumed	Assigned Activity Cost (Activity Rates X Activity Consumed)       (In $)
Setting Up Overheads	Machine Setups	1,200.00	per machine hour	400	$                          480,000
Machining Overheads	Machine hours	54.00	per direct labor hour	26,000	$                       1,404,000
Inspecting Overheads	Inspections	600.00	per inspection	700	$                          420,000
Total Overhead Cost	$                       2,304,000

Therefore the amount of overhead applied Case 165 using activity based costing is $ 2,304,000.

Working Notes:

Calculation of Total activity consumed:

	Board 12	Case 165	Total
Machine Setups	600	400	1,000
Machine hours	24,000	26,000	50,000
Inspections	800	700	1,500

Calculation of Activity Rates:

Activity Centre	Activity Base	Budgeted Overhead Cost (In $)	Total number of Activities	Activity Rate (Budgeted Activity Cost/ Total number of Activities) (In $)
Setting Up Overheads	Machine Setups	$        1,200,000	1,000	$           1,200.00	per machine setup
Machining Overheads	Machine hours	$        2,700,000	50,000	$                 54.00	per machine hour
Inspecting Overheads	Inspections	$           900,000	1,500	$             600.00	per inspection
Total	$ 4,800,000