Question

Craft Pro Machining produces machine tools for the construction industry. The following details about overhead costs were taken from its company records.

Production Activity Indirect Labor Indirect Materials Other Overhead
Grinding $ 360,000
Polishing $ 175,000
Product modification 400,000
Providing power $ 260,000
System calibration 550,000

Additional information on the drivers for its production activities follows.

Grinding 17,000 machine hours
Polishing 17,000 machine hours
Product modification 1,700 engineering hours
Providing power 17,000 direct labor hours
System calibration 250 batches
Job 3175 Job 4286
Number of units 120 units 1,500 units
Machine hours 300 MH 3,000 MH
Engineering hours 29 eng. hours 32 eng. hours
Batches 20 batches 60 batches
Direct labor hours 460 DLH 4,140 DLH
2, 3 & 4. Compute the activity overhead rates using ABC. Combine the grinding and polishing activities into a single cost pool. Determine overhead costs to assign to the following jobs using ABC. What is the overhead cost per unit for Job 3175? What is the overhead cost per unit for Job 4286? (Round your activity rate and average overhead cost per unit to 2 decimal places. Round "overhead assigned" to the nearest whole dollar.)

Job 3175 Job 4286
Activity Overhead Cost Activity Drivers Activity Rate Activity driver incurred Overhead assigned Activity driver incurred Overhead assigned
Grinding & Polishing $535,000 Machine hours
Product modification Engineering hrs.
Providing power Direct labor hrs.
System calibration batches
5. If the company uses a plantwide overhead rate based on direct labor hours, what is the overhead cost for each unit of Job 3175? Of Job 4286? (Do not round intermediate calculations. Round "OH Cost per unit" answers to 2 decimal places.)

Overhead costs 0
Direct labor hours
Product DL hours Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit
Job 3175 $0.00 $0
Job 4286 $0.00 $0

Answer 1

Answer and Explanation:

Activity       Overhead Cost       Activity Drivers      

Grinding &

Polishing       $535,000               17,000 Machine hours  

Product modification

per EH         $400,000              1,700 Engineering hrs.

For Job 3175

Activity                    Activity Rate      Activity driver Overhead

Grinding &                                              incurred           assigned

Polishing                $31.47 per MH           300                 $9,441

Product modification

per EH                   $235.29 per EH             29               $6,823

Providing power   $15.29 per DLH            460             $7,033

System calibration $2,200 per batch         20              $44,000

Total overhead cost                                                         $67,297

No. Of units in job                                                             120

Average overhead cost per unit                                      $560.81

For Job 4286

Activity                    Activity Rate      Activity driver Overhead

Grinding &                                              incurred           assigned

Polishing                $31.47 per MH           3,000             $94,410

Product modification

per EH                   $235.29 per EH           32                 $7,529

Providing power   $15.29 per DLH            4,140            $63,301

System calibration $2,200 per batch       60                 $132,000

Total overhead cost                                                        $297,240

No. Of units in job                                                             1500

Average overhead cost per unit                                     $198.16

2. Plant-wide overhead rate = Total overhead costs ÷ Estimated activity driver

= ($535,000 + $400,000 + $260,000 + $550,000) ÷ 17,000 DLH

= $102.65 per DLH

Product DLH    Plant-wide  Total OH   cost  units    OH cost

                                                                       produced    per unit

Job 3175 460      $102.65          $46,210       120           $385.08

                              per DLH

Job 4286 4,140 $102.65        $424,971      1,500        $283.31

                                per DLH