After reading an article about activity-based costing in a trade journal for the furniture industry, Adria Lopez wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Lopez 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 machines $ 20,000 25 batches

Inspecting components $ 7,000 5,000 parts

Providing utilities $ 10,000 5,000 machine hours

Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 6.15.

Direct materials $ 2,500

Direct labor $ 3,500

Batches 2 batches

Number of parts 400 parts

Machine hours 600 machine hours

Required:

1. What is the total cost of Job 6.15 if Success Systems applies overhead at 50% of direct labor cost?

2. What is the ttal cost of Job 6.15 if Success Systems uses activity based costing?

3. Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15?

Problem 5 Activity Based Costing

Table 9

Total Cost for Job 6.15

Job 6.15	Cost
Direct Materials
Direct Labor
Overhead ($3500 x 50%)
Total cost

Note. Total job costs for job 6.15 including _____rate of overhead applied to direct labor.

5.1

As equated in table 9 the cost of job 6.15 is _____ using a standard ___ overhead on direct labor calculation.

Table 10

Business Solutions Rates Derived for Activity Based Costing

Activity	Cost	Driver	Rate
Setting up machine
Inspecting Components
Utilities

.

Table 11

Total Cost for Job 6.15 Calculated with Activity Based Costing

Job 6.15 -ABC	Cost
Direct Materials
Direct Labor
Setting up machines (2 x 800)
Inspecting Components (400 x 1.5)
Utilities (600 x 2)
Total

5.2: As calculated in table 11, the total cost for job 6.15 using activity-based costing (ABC) is: _______________

5.3: