Question

Rapid City Technology, Inc. manufactures chemicals used in agricultural pest control. The controller has established the following activity cost pools and cost drivers.


An order for 1,000 boxes of a chemical product designated JLRP has the following production requirements.
Machine setups............................................................... 6 setups
Raw material................................................................... 9,000 pounds
Hazardous materials........................................................ 2,100 pounds
Inspections...................................................................... 8 inspections
Machine hours................................................................ 550 machine hours

Required:
1. Compute the total overhead that should be assigned to the JLRP order.
2. What is the overhead cost per box of JLRP chemicals?
3. Suppose the company were to use a single predetermined overhead rate based on machine hours. Compute the rate per hour.
4. Under the approach in requirement (3), how much overhead would be assigned to the JLRP chemical order?
a. In total.
b. Per box of JLRP chemical.
5. Explain why these two product-costing systems result in such widely differing costs. Which system do you recommend? Why?
6. Build a spreadsheet: Construct an Excel spreadsheet to solve requirements (1), (2), (3), and (4) above. Show how the solution will change if the following data change. The overhead associated with machine setups is $500,000, and there are 1,000 inspectionsbudgeted.


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  • CreatedApril 22, 2014
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