Cranest Manufacturing uses departmental cost driver rates to allocate manufacturing overhead costs to products.
Cranest is in the process of bidding on two jobs: Job 500 an order of 15 standard tables and Job 600 an order of 6 customized tables.

The CEO wants you to compare overhead allocated under simple job-costing system with one cost pool where overhead is allocated based on machine-hours and a newly-designed activity-based job-costing system, where total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follow:


Budgeted overhead
Activity Driver
Budgeted Quantity of Activity Driver
Purchasing $105,000
Purchase orders processed 3,000
Set-up 131,250
Nb of Set-ups 7,500
Machine maintenance 355,950
Machine-hours 15,750
Product inspection 28,350
Nb of inspections 1,800
Packaging 59,850
Units produced 5,700

Information related to Job 500 and Job 600 follows

Job 215
Job 325

Purchase orders processed 25 8

Nb of Set-ups 10 4

Machine-hours 40 60

Nb of inspections 9 3
Units produced 15 6

1-Compute The total overhead allocated to each job under a simple costing system (one cost pool)
2- Compute The total overhead allocated to each job under the ABC
3-Which method do you favor? Explain why.
4-How might Cranest use the information in requirement 2 to make better decisions.

Answer rating: 100% (QA)

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