if the company uses activity based costing how much overhead cost should be assigned 641331

(Activity analysis, ABC; pricing; cost drivers; decision making) Hurley Corporation has identified the following overhead costs and cost drivers for the coming year:

Overhead Item Don't use plagiarized sources. Get Your Custom Essay on if the company uses activity based costing how much overhead cost should be assigned 641331 Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT! Order Essay	Cost Driver	Budgeted Cost	Budgeted Activity Level
Machine setup	Number of setups	$ 20,000	200
Inspection	Number of inspections	130,000	6,500
Material handling	Number of material moves	80,000	8,000
Engineering	Engineering hours	50,000	1,000
		$280,000

The following information was collected on three jobs that were completed during the year:

	Job 101	Job 102	Job 103
Direct material	$5,000	$12,000	$8,000
Direct labor	$2,000	$ 2,000	$4,000
Units completed	100	50	200
Number of setups	1	2	4
Number of inspections	20	10	30
Number of material moves	30	10	50
Engineering hours	10	50	10

Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000.

a. If the company uses activity based costing, how much overhead cost should be assigned to Job 101?

b. If the company uses activity based costing, compute the cost of each unit of Job 102.

c. The company prices its products at 140 percent of cost. If the company uses activity based costing, what price should it set for each unit of Job 103?

d. If the company used a traditional accounting system and allocated overhead based on direct labor cost, by how much would each unit of Job 103 be over or under costed compared to activity based costing? What would be the management implications of this difference?

e. Identify any non value added activities or activities that may be currently necessary but appear to be inefficient in Hurley’s production process. Explain what steps the company management could take to improve the production process and potentially lower manufacturing costs.

f. The company is considering outsourcing inspections to an outside company that would perform the inspections for $10 apiece. What are the potential total savings if Hurley outsources the inspections? What other factors should company management consider before making this decision?

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