Chapter C, Problem 1SP

SP 1 This serial problem began in Chapter 1 and continues through most of the book. If previous chapter segments were 110t completed, the serial problem can begin at this point.

SPC After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 6.15.

Required

1. 1. What is the total cost of Job 6.15 if Business Solutions applies overhead at 50% of direct labor cost?
2. 2. What is the total cost of Job 6.15 if Business Solutions uses activity-based costing?
3. 3. Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15? Explain.