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After reading an article about activity-based costing in a trade journal for the furniture industry,...

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Accounting

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey decides to analyze overhead cost at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of the companys overhead. Additional information about overhead follows.

Activity Budgeted Cost Budgeted Activity Usage
Set up $ 17,160 22 setups
Inspection 5,400 5,400 parts inspected
Utilities 10,800 5,400 machine hours (MH)
Total $ 33,360

The following data pertain to Job 615.

Direct materials $ 2,400
Direct labor $ 3,700
Overhead $ _____
Setups 4 setups
Parts inspected 470 parts inspected
Machine hours 510 machine hours

Required: 1. Classify each of the three overhead activities as unit level, batch level, product level, or facility level. 2. Assume Business Solutions allocates overhead cost using a plantwide rate based on 5,400 machine hours. Compute total product cost of Job 615. 3. Assume Business Solutions uses activity-based costing. (a) Compute overhead activity rates. (b) Allocate overhead cost to Job 615. (c) Compute total product cost of Job 615.

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