Question

Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates: Activity Centers Cost Drivers Rate per Cost Driver Unit Materials handling Pounds of material handled $ 20 per pound Quality inspections Number of inspections $ 220 per inspection Machine setups Number of machine setups $ 2,500 per setup Running machines Number of machine-hours $ 21.00 per hour Direct materials costs were $299,000 and direct labor costs were $146,000 during July, when the Fabrication Department handled 3,500 pounds of materials, made 710 inspections, had 50 setups, and ran the machines for 17,000 hours. Required: Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory.

Answer 1

Answer:

Raw materials

Debit           Credit

               299,000

Wages Payable

Debit           Credit

               146,000

Factory Overhead

Debit           Credit

                708,200

WIP inventory

Debit           Credit

299,000

 146,000

708,200

1,153,200

Explanation:

3,500pounds x $20 overhead per pound  = 70,000

710 inspections x $220 per inspection  =     156,200

50 setups x $2,500 per setup  =                   125,000

17,000 machine hours x $21  =                       357,000

Total applied overhead:                                 708,200

The raw material will be credited as we decrease our inventory

the Direct labor will be wages payable

the factory overhead will be credited to represent the allcoated amount