E9.4 (LO 3), AP Olivander Company’s traditional costing system has accommodated only one pool for MOH to date, allocated based on DL hours. After conversing with the production managers, however, the company’s owners have gained insights on the key activities that generate cost in the plant. The three key activities, and the cost drivers identified for each, are as follows, along with their budgeted costs and usages for the year. Activity. Budgeted Cost Budgeted Quantity of Cost Driver Machine setup. $120,000 3,000 production runs Material moves 80,000 1,600,000 pounds of material moved Assembly 250,000 40,000 direct labor hours Total $450,000 Required a. Calculate the MOH rate under the current traditional costing system with one MOH pool and one cost driver. b. Calculate the activity-based rates using the three key activities, costs, and cost drivers. c. Calculate the amount of applied MOH to Job 55 under both the traditional method and the ABC method if the job used three production runs, 20,000 pounds of material, and 340 DL hours. Which allocation is likely more accurate? Explain.
E9.4 (LO 3), AP Olivander Company’s traditional costing system has accommodated only one pool for MOH to date, allocated based on DL hours. After conversing with the production managers, however, the company’s owners have gained insights on the key activities that generate cost in the plant. The three key activities, and the cost drivers identified for each, are as follows, along with their budgeted costs and usages for the year.
Activity. Budgeted Cost Budgeted Quantity of Cost Driver
Machine setup. $120,000 3,000 production runs
Material moves 80,000 1,600,000 pounds of material moved
Assembly 250,000 40,000 direct labor hours
Total $450,000
Required
a. Calculate the MOH rate under the current traditional costing system with one MOH pool and one cost driver. b. Calculate the activity-based rates using the three key activities, costs, and cost drivers.
c. Calculate the amount of applied MOH to Job 55 under both the traditional method and the ABC method if the job used three production runs, 20,000 pounds of material, and 340 DL hours. Which allocation is likely more accurate? Explain.
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