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 perCost Driver Unit Materials handling Pounds of material handled $ 16 per pound Quality inspections Number of inspections $ 240 per inspection Machine setups Number of machine setups $ 2,600 per setup Running machines Number of machine-hours $ 21.00 per hour Direct materials costs were $305,000 and direct labor costs were $135,000 during July, when the Fabrication Department handled 3,800 pounds of materials, made 700 inspections, had 30 setups, and ran the machines for 15,000 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. T- ACCOUNTS (beginning & ending balances) Materials Inventory, Wages Payable, Overhead Applied: Materials Handling, Overhead Applied: Quality Inspections, Overhead Applied: Machine Setups, Overhead Applied: Running Machines, Work in Process (WIP) Inventory Fabrication Department, Finished Goods Inventory

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

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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	$	16	per pound
Quality inspections	Number of inspections	$	240	per inspection
Machine setups	Number of machine setups	$	2,600	per setup
Running machines	Number of machine-hours	$	21.00	per hour

Direct materials costs were $305,000 and direct labor costs were $135,000 during July, when the Fabrication Department handled 3,800 pounds of materials, made 700 inspections, had 30 setups, and ran the machines for 15,000 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.

T- ACCOUNTS (beginning & ending balances)

Materials Inventory,

Wages Payable,

Overhead Applied: Materials Handling,

Overhead Applied: Quality Inspections,

Overhead Applied: Machine Setups,

Overhead Applied: Running Machines,

Work in Process (WIP) Inventory Fabrication Department,

Finished Goods Inventory

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