Wallace Company purchases raw materials for a total cost of $42,000; incurs $32,000 of factory labor costs; other m

(utilities, insurance, repairs) for $13,800.

Based on materials requisition slip for each product, Wallace uses direct materials $12,000 for job 1; $7,000 for job 2
$6,000 of indirect materials in January
Based on time ticket for each job, Wallace also uses direct labor $15,000 for job 1; $9,000 for job 2; $4,000 for job3
Wallace Company uses direct labor cost as the activity base. Assuming that the company expects annual overhead
estimate direct labor costs for the year to be $350,000.
Wallace Company finishes and sells Job 1. The job cost $39,000 and it sold for $50,000.

Raw Materials Inventory Work in Process Inventory

$ 42,000 $ 30,000 24000 (sum all direct $ 39,000
28000 (sum all direct labor)
22400 (Calculated MU for all jobs)
$ -

Factory Labor Finished Goods Inventory

$ 32,000 $ 32,000 $ 39,000 $ 39,000

Manufacturing Overhead Cost of Goods Sold

$ 13,800 $ 22,400 $ 39,000
$ 6,000
$ 4,000
$ 1,400
Under/overapplied? Underapplied
toPredetermined
balance, creditOverhead
MU and debit
RateCOGS
ory labor costs; other manufacturing overhead

or job 1; $7,000 for job 2; $5,000 for job3 and

r job 2; $4,000 for job3 and $4,000 of indirect labor

pects annual overhead costs to be $280,000 and

0.8 This is the predetermined overhead rate. They decided to us

Job1 22400
Direct materials $ 12,000
Direct labor $ 15,000
MO $ 12,000 35400
Total $ 39,000

Job2
Direct materials $ 7,000
Direct labor $ 9,000
MO $ 7,200
Total $ 23,200

Job3
Direct materials $ 5,000
Direct labor $ 4,000
MO $ 3,200
Total $ 12,200

Unfinished goods $ 35,400

(either the balance for WIP or just the sum of Job 2 and 3)
head rate. They decided to use direct labor cost as the activity base
 Estimated Use of Use of Cost
Estimated Cost Cost Drivers per Drivers per Product
Activity Cost Pool Overhead Drivers Activity Bench
Manufacturing $700,000 Machine hours 50,000 Machine hours 30,000
Machine Setups 100,000 Number of setups 2,000 setups 500
Purchase Ordering 50,000 Number of orders 2,500 orders 750
Factory Maintenance 50,000 square footage 25,000 square feet 10,000
Total 900,000

1. estimated overhead - estimated by manager

3. compute activity based oberhead rates = estimated overhead pera activity/estimated use of cost drivers per activity
in allocating overhead costs, the company must know the use of cost drivers for each product.atlas company produces 25000
To allocate overhead cost, atlas multiplies the activity based overhead rates per cost driver by the numer of cost drivers used
 Use of Cost Use of Cost
Drivers per Product Overhead Drivers per Product
Coaster Rates Bench Coaster
20,000 $ 14 per machine hour 420,000 280,000
1,500 $ 50 per setup 25,000 75,000
1,750 $ 20 per order 15,000 35,000
15,000 $ 2 per square foot 20,000 30,000
Total cost assigned
Unit Produced
Overhead cost per unit

cost drivers per activity

atlas company produces 25000 ab benches and 5000 ab coasters,
the numer of cost drivers used per product
DO IT! 17.4
(a) Computations of activity-based overhead rates per cost driver:
Estimated Use of
Estimated Cost Drivers per Activity-Based
Activity Cost Pool Overhead Activity Overhead Rates
Loading & unloading $70,000 100,000 pieces $0.70
Travel 250,000 500,000 miles 0.5
Logistics 60,000 2,000 hours 30

(b) Determine the total overhead allocated to Job A1027 which has 200
pieces, requires 100 miles of driving, and 0.8 hours of logistics
Overhead applied to job A1027:
Loading & unloading $140.00
Travel 50
Logistics 24
$214.00
Practice 3
(a) Computations of activity-based overhead rates per cost driver:
Estimated Use of
Estimated Cost Drivers per Activity-Based
Activity Cost Pool Overhead Activity Overhead Rates
Ordering and receiving 200,000 2500 orders 80
Machine setup 600,000 1,200 Setups 500
Machining 2,000,000 800,000 Machine hours 2.5
Assembling 1,800,000 3,000,000 parts 0.6
Inspecting and testing 700,000 35,000 tests 20
$5,300,000

(b) Assignment of each activity's overhead cost to products using ABC:

Scissors Jack Hydraulic Jack
Estimated Use Estimated Use
of Cost Drivers Cost of Cost Drivers Cost
Activity Cost Pools per Product Assigned per Product Assigned
Ordering and receiving 1,000 80,000 1,500 120,000
Machine setup 500 250,000 700 350,000
Machining 300,000 750,000 500,000 1,250,000
Assembling 1,800,000 1,080,000 1,200,000 720,000
Inspecting and testing 20,000 400,000 15,000 300,000
Total assigned costs 2,560,000 2,740,000

(c) Computation of overhead cost per unit:

Scissors Jack
Total costs assigned 2,560,000
Total units produced 200,000
Overhead cost per unit 12.8
 Activity-Based
Overhead Rates

Hydraulic Jack
2,740,000
80,000
34.25