Answer:
Firenza Company
1. Plantwide overhead rate based on machine hours = $3.35
2. Overhead Rates:
Purchasing $8 per purchase order
Setups $75 per setup
Engineering $20 per engineering hour
Other $8 per machine hour
Plantwide rate ABC rates
Bid prices
Job 1 $6,470 $12,103
Job 2 $12,210 $19,320
3. The bids based on ABC rates are more accurate.
Explanation:
a) Data and Calculations:
Budgeted overhead for the coming year is:
Purchasing $40,000
Setups 37,500
Engineering 50,000
Other 40,000
Total overhead $167,500
Expected machine hours = 50,000
Plantwide overhead rate based on machine hours = $3.35 ($167,500/50,000)
Overhead Usage / Cost Driver Overhead Rates
Purchasing $40,000 5,000 purchase orders $8/purchase order
Setups 37,500 500 setups $75/ setup
Engineering 50,000 2,500 engineering hours $20/eng. hour
Other 40,000 5,000 machine hours $8 /machine hour
Job Costing based on Plantwide rate:
Job 1 Job 2
Direct materials $4,600 $9,340
Direct labor 1,200 2,200
Overhead costs: 670 670
Total production costs $6,470 $12,210
Job Costing based on ABC rates:
Job 1 Job 2
Direct materials $4,600 $9,340
Direct labor $1,200 $2,200
Overhead costs: $2,845 $2,260
Total costs of production $8,645 $13,800
Markup (40%) $3,458 $5,520
Selling price $12,103 $19,320
Number of purchase orders $120 (15*$8) $160 (20*$8)
Number of setups 225 (3*$75) 300 (4*$75)
Number of engineering hours 900 (45*$20) 200 (10*$20)
Number of machine hours 1,600 (200*$8) 1,600 (200*$8)
Overhead costs: $2,845 $2,260
