Assessment 3 Part 2: Activity-Based Costing and Predetermined Overhead Allocation Rates

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Assessment 3 Part 2

Assessment 3 Part 2: Activity-Based Costing and Predetermined Overhead Allocation Rates
Assessment 3 Part 2: Activity-Based Costing and Predetermined Overhead Allocation Rates
Assessment 3 Part 2: Activity-Based Costing and Predetermined Overhead Allocation Rates
Scenario:
Bath Fixtures Supply, Inc. (BFSI), manufactures three types of fixtures: industrial, standard, and brass. It applies all indirect costs according to a predetermined rate based on direct labor-hours. A consultant recently suggested that the company switch to an activity-based costing system and prepared the following cost estimates for year 2 for the recommended cost drivers.
Activity Recommended Cost Driver Estimated Cost Estimated Cost Driver Activity
Processing orders Number of orders $     59,400       200 orders
Setting up production Number of production runs      237,600       100 runs
Handling materials Pounds of materials used      $396,000       132,000 pounds
Machine depreciation and maintenance Machine-hours      316,800       13,200 hours
Performing quality control Number of inspections        79,200       45 inspections
Packing Number of units      158,400       480,000 units
Total estimated cost $1,247,400
In addition, management estimated 7,500 direct labor-hours for year 2.
Assume that the following cost driver volumes occurred in January, year 2:
Industrial Standard     Brass
Number of units produced   66,000   26,400     9,900
Direct materials costs $42,900 $26,400 $16,500
Direct labor-hours        450        450        600
Number of orders          12            9            6
Number of production runs            3            3            6
Pounds of material   16,500     6,600     3,300
Machine-hours        638        140          80
Number of inspections            3            3            3
Units shipped   66,000   26,400     9,900
Actual labor costs were $15 per hour.

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