AC202 Ch17

Topics: Costs, Cost Pages: 2 (273 words) Published: October 25, 2013

Chapter 17: Brief Exercise 1-8

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

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.

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

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

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

$45 per designer hour
$25 per machine hour
$18 per labor hour
$10.50 per finished unit

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

PurchasingNVACost accountingNVA
ReceivingNVAMoving work in processNVA
Design engineeringVAInspecting...
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