AC202 Ch17

AC202

Chapter 17: Brief Exercise 1-8

BE17-1:
Estimated Annual Overhead Costs / Expected Annual Operating Activity = Predetermined Overhead Rate
$1,000,000 / ($45,000+$92,000) = $7.299

BE17-2:
The traditional costing system of assigning overhead cost is only an estimated number used from values/information gathered from the prior year(s). Using the activity-based costing system in addition to the estimated number, the formula also puts into account any cost drivers that may drive up (or down) the cost. The overhead cost using this method is related to an activity.
The company using the traditional costing system did not put into account any additional cost drivers that made the overhead cost much more.

BE17-3:
Materials handling (cost driver): Purchase orders
Machine setup (cost driver): Number of machines
Factory machine maintenance (cost driver): Number of machines and labor hours
Factory supervision (cost driver): Direct labor hours
Quality control (cost driver): Number of inspections

BE17-4:
Inventory Control (cost driver): Amount of inventory
Machine Setups (cost driver): Number of machines
Employee Training (cost driver): Number of employees
Quality Inspections (cost driver): Tests
Material Ordering (cost driver): Purchase orders
Drilling Operations (cost driver): Amount of drilling needed
Building Maintenance (cost driver): Buildings

BE17-5:
Activity Cost Driver Activity-Based Overhead Rates
Machine Setup $150,000 Number of setups 2,500 $60 per setup
Machining $325,000 Machine hours 25,000 $13 per machine hour
Inspections $87,500 Number of inspections 1,750 $50 per inspection

BE17-6:
$45 per designer hour
$25 per machine hour
$18 per labor hour
$10.50 per finished unit

BE17-7:
2012 Overhead applied:
$8.18 per order
$9.60 per machine hour
$3.52 per labor hour

BE17-8:
Purchasing NVA Cost accounting NVA
Receiving NVA Moving work in process NVA
Design engineering VA