The controller for Wolfe Machining has established the following overhead cost pools and cost drivers:
|
|
Overhead Cost Pool
|
Budgeted
Overhead Cost
|
Cost Driver
|
|
|
Machine setups
|
$240,000
|
Number of setups
|
|
|
Material handling
|
90,000
|
Units of raw material
|
|
|
Quality control inspection
|
48,000
|
Number of inspections
|
|
|
Other overhead costs
|
160,000
|
Machine hours
|
|
|
Total
|
$538,000
|
|
|
|
|
|
|
|
|
Overhead Cost Pool
|
Budgeted Level
for Cost Driver
|
Overhead Rate
|
|
|
Machine setups
|
200 setups
|
$1,200 per setup
|
|
|
Material handling
|
60,000 units
|
$1.50 per unit
|
|
|
Quality control
|
1,200 inspections
|
$40 per inspection
|
|
|
Other overhead
|
20,000 machine hours
|
$8 per machine hour
|
|
Order no. 715 has the following production requirements:
|
|
Machine setups: 7
|
|
|
Raw material: 11,200 units
|
|
|
Inspections: 16
|
|
|
Machine hours: 850
|
|
|
|
|
|
Required:
A. Compute the total overhead that should be assigned to order no. 715 by using activity-based costing.
B. Suppose that Wolfe were to use a single, predetermined overhead rate based on machine hours. Compute the predetermined overhead rate per hour and the total overhead assigned to order no. 715.
C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.