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Overhead allocation: Traditional v ABC costing

Acme Enterprises has identified the following overhead costs and cost drivers for the coming year:

Overhead Item Cost Driver Budgeted Cost Budgeted Activity Level
Quality Number of inspections $125,000 2,500
Engineering Engineering hours 100,000 2,500
Machine setup Setup hours 90,000 400
Material handling Number of material moves 85,000 1,000

Budgeted direct labor cost was $200,000 and budgeted direct material cost was $300,000. The following information was collected on three jobs that were completed during the month:

Job A Job B Job C
Direct materials $5,000 $2,800 $8,000
Direct labor $4,000 $4,000 $8,000
Units completed 200 100 300
Number of inspections 20 10 20
Number of material moves 60 20 80
Engineering hours 10 50 10
Number of setups 13 25 18

Required: (25 Points)

a. If the company uses traditional costing and allocates overhead using direct labor cost, how much overhead cost should be assigned to Job A, B, and C?
b. If the company uses activity-based costing (ABC), how much overhead cost should be assigned to Job A, B, and C?

Solution Summary

This solution answers questions regarding traditional costing and activity-based costing. Concepts addressed include traditional costing and activity-based costing.

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