Holiday Industries manufactures a variety of custom products. The company has traditionally used a plant wide manufacturing overhead rate based
Up to this point, hazardous waste disposal fees have been absorbed into the plant wide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process. Recently, the company has been experiencing significantly increased waste-disposal fees for hazardous waste generated by certain products, and as a result, profit margins on all products have been negatively impacted. Company management wants to implement an activity-based costing system so that managers know the cost of each product, including its hazardous waste disposal costs.
Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows:
During the year, Job 356 is started and completed. Usage for this job follows:
290 pounds of direct materials at $35 per pound
20 direct labor hours used at $20 per labor hour
60 machine hours used
9 change orders
60 pounds of hazardous waste generated
1. Calculate the cost of Job 356 using the traditional plant wide manufacturing overhead rate based on machine hours.
2. Calculate the cost of Job 356 using activity-based costing.
3. If you were a manager, which cost estimate would provide you more useful information? How might you use this information?
This problem has been solved!
Step by Step Answer: