Mansfield Manufacturing Co. uses ABC. The factory overhead bud- get for the coming period is $750,000, consisting of the following:
Cost Pool Budgeted Amount
Direct labor facility and support...................... $300,000
Machine support.............................................. 250,000
Material movement........................................... 125,000
Engineering...................................................... 75,000
Total................................................................. $750,000
The potential allocation bases and their estimated amounts were as follows:
Cost Pool Budgeted Amount
Number of component parts............................ 75
Number of material moves............................... 400
Machine hours.................................................. 10,000
Direct labor hours............................................. 25,000
Required:
1. Determine the overhead rate for each cost pool, using the most appropriate allocation base for each pool. (Use each allocation base only once.)
2. Job 007 required $15,000 for direct materials, $20,000 for direct labor, 800 direct labor hours, 1,200 machine hours, six setups, and four component parts. Determine the cost of Job 007.
3. Assume Mansfield used the direct labor hour method to apply factory overhead to Job 007. Determine the predetermined factory overhead rate using the direct labor hour method.
4. Determine the cost of Job 007 using the direct labor hour method to apply factory overhead.
5. What might have been the impact on Mansfield’s profits if it had used the direct labor hour method rather than the ABC method?