Industries manufactures a variety of custom

productsproducts.

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 comma 560 comma 000$1,560,000

in total manufacturing overhead costs in the upcoming year and will use

8 comma 0008,000

machine hours.

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Click the icon to view the additional information about the hazardous waste disposal fees.)

Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows:

Estimated Activity

Description of Cost Pool

Estimated Cost

Cost Driver

for this Year

Machine maintenance costs. . . . . . . .

$320,000

Number of machine hours. . . . . . . . . . . . . . .

8,000

Engineering change orders. . . . . . . .

$50,000

Number of change orders. . . . . . . . . . . . .

1,000

Hazardous waste disposal. . . . . . . . .

$1,190,000

Pounds of hazardous materials generated. .

3,500

Total overhead cost. . . . . . . . . . . . . . .

$1,560,000

(Click the icon to view the expected usage and costs.)During the year,

Job 356Job 356

is started and completed. Usage for this job follows:

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(Click the icon to view the usage for

Job 356Job 356.)

310 pounds of direct materials at $70 per pound

20 direct labor hours used at $45 per labor hour

80 machine hours used

8 change orders

60 pounds of hazardous waste generated

Requirement 1. Calculate the cost of

Job 356Job 356

using the traditional plantwide manufacturing overhead rate based on machine hours.

Begin by calculating the plantwide overhead rate. First identify the formula used to compute the plantwide overhead rate, then compute the rate. (Abbreviations used: MOH = manufacturing overhead; mfg. = manufacturing)

/

=

Plantwide mfg. overhead rate

/

=

Calculate the cost of

Job 356Job 356.

Job Cost Record	Manufacturing
JOB 356	Costs
Total job cost

Requirement 2. Calculate the cost of

Job 356Job 356

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 356Job 356

using activity-based costing.

Job Cost Record	Manufacturing
JOB 356	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

activity-based costing rates

traditional plantwide manufacturing overhead rate

would provide more useful information because this cost estimate takes into account

the machine hours used by each product

the specific resources used by each product

.

This information can be used to