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The job costing system at

Sheri'sSheri's

Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job

215215,

an order of

1515

intricate personalized frames, and Job

325325,

an order of

44

standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly designed activity-based job-costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows.

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(Click the icon to view the job data.)Read the requirements

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.

Requirement 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours.

Begin by calculating the overhead rate under the simple costing system. First select the formula, then enter the applicable amounts and calculate the rate. (Round your answer to the nearest cent. Abbreviations used: bgt. = budgeted, mach. = machine, mat. = material, purch. = purchase, qty. = quantity.)

				Budgeted overhead rate
	/		=	Simple costing system
	/		=

Now calculate the total overhead allocated to each job under a simple costing system. (Round your answer to the nearest cent.)

Simple costing system	Job 215	Job 325
Indirect cost allocated

Requirement 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers. (Round the allocation rates to three decimal places, X.XXX. Abbreviations used: bgt. = budgeted, mach. = machine, maint. = maintenance, mat. = material, purch. = purchase, qty. = quantity, prod. = produced.)

/

=

ABC allocation rate

Purchasing

/

=

Mat. handling

/

=

Mach. maint.

/

=

Inspection

/

=

Packaging

/

=

Now calculate the total overhead allocated to Job

215215

and Job

325325

under an activity-based costing system. (Round interim calculations to three decimal places and your final answers to the nearest cent.)

ABC costing system	Job 215
Overhead costs allocated:
Purchasing
Materials handling
Machine maintenance
Inspection
Packaging
Total costs

Job 325

Requirement 3. Explain why

Sheri'sSheri's

Custom Framing might favor the ABC job-costing system over the simple job-costing system, especially in its bidding process. (Select all choices that apply.)

A.

The manufacturing manager likely would find the ABC job-costing system more useful in cost management. Unlike direct manufacturing labor costs, the five indirect cost pools are systematically linked to the activity areas at the plant. The result is more accurate product costing. The manufacturing manager can seek to reduce both the level of activity (fewer purchase orders, less material handling) and the cost of each activity (such as the cost per inspection).

B.

Implementing an ABC costing system will be less complex than a simple job-costing system.

C.

The ABC job-costing system will always result in a lower allocation of overhead costs to jobs than the simple job-costing system.

D.

Marketing managers can use ABC information to bid for jobs more competitively because ABC provides managers with a more accurate reflection of the resources used for and the costs of each job.

Choose from any list or enter any number in the input fields and then continue to the next question.

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