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    Activity based costing accounting systems

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    Spear Custom Furniture uses an activity-based cost accounting system to apply overhead to production.
    The company maintains four overhead cost pools. The four cost pools, and their budgeted
    amounts for the upcoming period, are as follows:

    Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000
    Materials handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
    Set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
    Quality control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000

    Four cost drivers are used by Spear to allocate its overhead cost pools to production. The four cost
    drivers, and their budgeted total levels of activity for the upcoming period, are shown below:

    Machine hours (to allocate maintenance costs) . . . . . . . . . . . . . . . . . . . . . . . 600 hours
    Material moves (to allocate materials handling costs) . . . . . . . . . . . . . . . . . . 400 moves
    Set-ups (to allocate set-up costs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 set-ups
    Number of inspections (to allocate quality control costs) . . . . . . . . . . . . . . . . 300 inspections

    The company has been asked by Cosmopolitan University to submit a bid for tables to be used in a
    new computer lab. The plant manager feels that obtaining this job would result in new business in
    future years. Estimates for the Cosmopolitan University project are as follows:

    Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000
    Direct labor (500 hours) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
    Number of machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
    Number of material moves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
    Number of set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
    Number of inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

    a. Estimate the total cost of manufacturing the tables for Cosmopolitan University.

    b. Determine the company's bid price if bids are based upon the total estimated manufacturing
    cost of a particular project, plus 75 percent.

    © BrainMass Inc. brainmass.com June 2, 2020, 1:49 am ad1c9bdddf
    https://brainmass.com/business/accounting/activity-based-costing-accounting-systems-627459

    Solution Summary

    Spear Custom Furniture uses an activity-based cost accounting system to apply overhead to production.
    The company maintains four overhead cost pools. The four cost pools, and their budgeted
    amounts for the upcoming period, are as follows:
    Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,000
    Materials handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
    Set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
    Quality control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
    Four cost drivers are used by Spear to allocate its overhead cost pools to production. The four cost
    drivers, and their budgeted total levels of activity for the upcoming period, are shown below:
    Machine hours (to allocate maintenance costs) . . . . . . . . . . . . . . . . . . . . . . . 600 hours
    Material moves (to allocate materials handling costs) . . . . . . . . . . . . . . . . . . 400 moves
    Set-ups (to allocate set-up costs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 set-ups
    Number of inspections (to allocate quality control costs) . . . . . . . . . . . . . . . . 300 inspections
    The company has been asked by Cosmopolitan University to submit a bid for tables to be used in a
    new computer lab. The plant manager feels that obtaining this job would result in new business in
    future years. Estimates for the Cosmopolitan University project are as follows:
    Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,000
    Direct labor (500 hours) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
    Number of machine hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
    Number of material moves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
    Number of set-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
    Number of inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
    a. Estimate the total cost of manufacturing the tables for Cosmopolitan University.
    b. Determine the company's bid price if bids are based upon the total estimated manufacturing
    cost of a particular project, plus 75 percent.

    $2.19

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