Comprehensive Test #3 Review Problems

1. Traditional vs. Activity Based Costing Chapter 7

Job A requires $5,600 of direct material and $3,500 of Direct Labor to produce. We use 100 direct labor hours to produce Job A. Job A requires 4 machine setups and 20 testing hours.

We estimate manufacturing overhead to be $1,020,000 for the next year and we expect to have 40,000 direct labor hours used in our manufacturing plant.

Currently we use Traditional Costing for costing our products.

1. Compute the POHR
2. What amount of overhead should be applied to Job A using Traditional Costing?
3. What is the total product cost of Job A using Traditional Costing?

Our Company has decided to use ABC Costing using the following Cost Pools:

Pool Est Mfg. OH costs Activity Measure Estimated Activity

Supporting DL $300,000 DLH 40,000 DLH

Machine Setups $450,000 Machine setups 5,000 Machine setups

Testing $270,000 Testing Hours 13,500 Testing Hours

Total OH $1,020,000

4. What are the activity rates for each cost pool?
5. What is the amount of manufacturing overhead that should be applied to Product A using ABC costing?
6. What is the total product cost of Product A using ABC Costing?