Question

71 necessary workings Shou se shown. Where appropriate, secondary sources ar Information used in your report should be referenced accordingly. All solutions must be in a MS Word format, font 12, margins of 1 inch all sides on letter-sized paper and double-spaced except for numerical workings which can be single- spaced. 1. Liberal Minority Inc (LMI) is plastic injection molding company specialising in front-end grilles. For 2019, it estimated overhead costs of $12,560,000 to be allocated using an activity-based costing system (see the table below). LMI also estimated that direct labour will be paid at the rate of $15 per hour. Activity Cost Pool Total Quantity of Allocation Base Estimated cost Driver Cost (allocation base) $ 1,450,000 Direct materials 2,000,000 Direct labour $6,590,910 100,000 hours Indirect materials Indirect labour and supervision Utilities Inspection Depreciation 3,598,000 Power consumption 4,200,000 Inspection 1.312.000 Machine usage $12,560,000 20,000 kilowatt-hours (kWh) 15,000 inspections 160,000 machine-hours During January 20X5, Gilbert worked on two jobs, which consumed the following resources: Job 2015-A1 Job 2015-A2 Direct materials cost $6,500 $ 22,000 Direct labour cost $42,000 $165,000 Machine-hours 1,800 7,000 Number of inspections 200 Power consumed (kWh) 800 800 Number of units 100 200 At the end of the year, LMI recorded the consumption of resources as follows: direct materials, $6,660,800; direct labour, 101,540 hours; machine-hours, 158,700, power consumption, 20.370 kilowatt-hours: number of inspections, 14,780. The company also recorded actual overhead amounting to $12,538,250. Required: a) Compute the activity rate for each activity cost pool b) Compute the cost per unit using activity based costing. c) Determine the total manufacturing overhead applied to jobs during the year. d) Calculate the under-or overapplied overhead for the year and show how you will dispose of this amount at the end of the year.

Answer 1

a)

Activity Cost Pool	Estimated cost	Allocation base	Activity Rate
Indirect Materials	1,450,000.00	6,590,910.00	0.22
Indirect labor and Supervision	2,000,000.00	100,000.00	20.00
Utilities	3,598,000.00	20,000.00	179.90
Inspection	4,200,000.00	15,000.00	280.00
Depreciation	1,312,000.00	160,000.00	8.20

b)

Activity Cost Pool	Activity Rate	Job 2015 -A1		Job 2015 -A2
		Activity	Total Allocation	Activity	Total Allocation
Indirect Materials	0.22	6500	1,430.00	22000	4,840.00
Indirect labor and Supervision	20.00	2800	56,000.00	11,000.00	220,000.00
Utilities	179.90	800	143,920.00	800	143,920.00
Inspection	280.00	200	56,000.00	200	56,000.00
Depreciation	8.20	1800	14,760.00	7000	57,400.00
Total Overhead Cost			272,110.00		482,160.00

	Job 2015 -A1	Job 2015 -A2
Direct materials	6,500.00	22,000.00
Direct Labor	42,000.00	165,000.00
Overhead	272,110.00	482,160.00
Total Cost	320,610.00	669,160.00
No of units	20.00	100.00
Cost per unit	16,030.50	6,691.60

c)Total Manufacturing Overhead applied = 12,560,000

d)overapplied overhead = 12,560,000 - 12,538,250 = 21,750

Cost of Goods will reduced by 21,750