The accountant for Click Photography Ltd has estimated the following cost pools and relevant activity drivers for
Question:
The accountant for Click Photography Ltd has estimated the following cost pools and relevant activity drivers for the coming year:
Activity Budgeted Overhead Cost
Machine setups $ 300,000
Material Handling $ 150,000
Hazardous waste control $ 75,000
Quality control $ 112,000
Other overhead cost $ 300,000
Total $ 937,500
Activity Driver Budgeted level of Activity Driver
No. of setups 100
Weight of raw material 50 000 kg
Weight of hazardous chemicals used 10 000 kg
No. of inspections 1 000
Machine hours 20 000
An order of 1 000 boxes of film development chemicals has been received, and the order has the following requirements:
Machine setups - 4 setups
Material handling - 10 000 kg
Hazardous waste control - 2 000 kg
Quality control - 10 inspections
Other overhead costs - 500 machine hours
Required:
Applying Activity Based costing:
- Calculate the total overhead cost that should be assigned to the order.
- Calculate the overhead cost per box ordered.
Applying a plant-wide pre-determined overhead rate based on machine hours:
- Calculate the total overhead cost that should be assigned to the order.
- Calculate the overhead cost per box ordered.
Explain why these two product costing systems results in such widely differing costs. Which system do you recommend and why?
Expert Answer:
Applying ActivityBased Costing ABC 1 Calculate the total overhead cost that should be assigned to the order Total overhead cost Number of setups Cost ... View the full answer
