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Serial Problem Business Solutions
After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.
Activity
Cost
Driver
Setting up machinfes
$26,700
30 batches
Inspecting components
$4,600
4,600 parts
Providing utilities
$9,200
4,600 machine hours
Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615.
Direct materials
$2,200
Direct labor
$3,100
Batches
5 batches
Number of parts
460 parts
Machine hours
550 machine hours
Required:
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
2. What is the total cost of Job 615 if Business Solutions applies overhead at 50% of direct labor cost?
3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?
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