# Sidney Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing...

Sidney Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur \$1,350,000 in total manufacturing overhead costs in the upcoming year and will use 15,000 machine hours.

Requirement 2. Calculate the cost of Job 355 using activity-based costing. Begin by calculating the allocation rate for each activity. First determine the formula to compute the allocation rate in an activity-based costing system, then compute the rate for each activity. (Abbreviations used: est. = estimated, MH=machine hours, Mach.=Machine, Eng.=Engineering) Activity cost = allocation rate Mach, maintenance per MH Eng. change orders per order Waste disposal per pound
Calculate the cost of Job 355 using activity-based costing. Job Cost Record Manufacturing JOB 355 Costs Total job cost Requirement 3. If you were a manager, which cost estimate would provide you more useful information? How might you use this information? The cost estimate based on the would provide more useful information because this cost estimate takes into account . This information can be used to Choose from any list or enter any number in the input fields and then continue to the next question. ?
i X Х Data Table Description of Cost Pool Estimated Cost Cost Driver Estimated Activity for this Year 15,000 5,000 \$ Machine maintenance costs.. Engineering change orders 600,000 Number of machine hours. 100,000 Number of change orders 650,000 Pounds of hazardous materials generated .. 1,350,000 \$ Hazardous waste disposal 2,500 \$ Total overhead cost. Print Done
i X Х Requirements 1. 2. Calculate the cost of Job 355 using the traditional plantwide manufacturing overhead rate based on machine hours. Calculate the cost of Job 355 using activity-based costing. If you were a manager, which cost estimate would provide you more useful information? How might you use this information? 3. Print Done
i -X More Info Up to this point, hazardous waste disposal fees have been absorbed into the plantwide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process. Recently, the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products, and as a result, profit margins on all products have been negatively impacted. Company management wants to implement an activity-based costing system so that managers know the cost of each product, including its hazardous waste disposal costs. Print Done
X Х 1 Data Table 320 pounds of direct materials at \$65 per pound 60 direct labor hours used at \$40 per labor hour 120 machine hours used 12 change orders 70 pounds of hazardous waste generated Print Done

1.
= \$1350000 / 15000 = \$90 per machine hour

 Manufacturing Costs Job 355 Direct Material \$        20,800 Direct Labor \$          2,400 Manufacturing Overhead \$        10,800 =120*90 Total Job Cost \$        34,000

2.
Activity Cost Allocation rate = Total Activity Cost / Estimated Activity
Machine maintenance costs = \$600000 / 15000 = \$40 per machine hour
Engineering Change Orders = \$100000 / 5000 = \$20 per order
Hazardous Waste disposal = \$650000 / 2500 = \$260 per pound

 Manufacturing Costs Job 355 Direct Material \$        20,800 Direct Labor \$          2,400 Manufacturing Overhead \$        23,240 =120*40+12*20+70*260 Total Job Cost \$        46,440

3.
The cost estimate based on the activity based costing would provide more useful information because this cost estimate takes into account Hazardous waste disposal. This information can be used to correctly estimate the cost.

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