The controller for Norton Machining has established the following overhead cost pools and cost drivers:Overhead Cost PoolBudgeted Overhead CostCost DriverMachine setups $240,000Number of setupsMaterial handling 90,000Units of raw materialQuality control inspection 48,000Number of InspectionsOther overhead costs 160,000Machine hoursTotal$538,000?Overhead Cost PoolBudgeted Level for Cost DriverPool RateMachine setups200 setups$1,200 per setupMaterial handling60,000 units$1.50 per unitQuality control1,200 inspections$40 per inspectionOther overhead 20,000 machine hours$8 per machine hourOrder no. 715 has the following production requirements: Machine setups: 7Raw material: 11,200 unitsInspections: 16Machine hours: 850Required: A. Compute the total overhead that should be

assigned to order no. 715 by using activity-based costing.B. Suppose that Norton were to use a single, predetermined overhead rate based on machine hours. Compute the rate per hour and the total overhead assigned to order no. 715.C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.

What will be an ideal response?

Overhead Cost Pool	Pool Rate	Level of Cost Driver	Cost
Machine setups	$1,200 per setup	7 setups	$8,400
Material handling	$1.50 per unit	11,200 units	16,800
Quality control	$40 per inspection	16 inspections	640
Other overhead costs ?	$8 per machine hour	850 machine hours	6,800
Total	?	?	$32,640

B.	$538,000 ÷ 20,000 machine hours = $26.90 per hour;

$26.90 per hour × 850 hours = $22,865

C.	Activity-based costing (ABC) uses multiple cost drivers, more closely aligning

individual costs with the factors that are creating them. Traditional systems, in contrast, use fewer drivers and therefore result in "lumping" unlike activities (unit-level, batch-level, and so forth) together. The end result is that ABC tends to eliminate the cost distortion that sometimes arises with traditional systems, more specifically, the under- or overcosting of products.

Business

You might also like to view...

According to Turkle, no matter how valuable Twitter and Facebook are, they do not substitute for ______.

Fill in the blank(s) with the appropriate word(s).

View

Business

Activity-based costing (ABC):

A) should not be applied to non-manufacturing activities. B) should not be applied to service companies. C) can be applied to administrative activities. D) can only be used by manufacturing companies.

View

Business

Mary was selling her house. The purchase asked if it had termites and Mary replied in horror, "absolutely not". However, it did have termites

But clever insects that they are, they kept well inside the wood so Mary never saw them and didn't have any idea that they were there. There was no mention of this statement in the contract for sale of the house. Mary's statement is considered in law to be A) an innocent misrepresentation B) a negligent misrepresentation C) a false warranty D) of no consequence because it was not included in the written contract E) of no consequence because she believed that there were no termites and was honestly mistaken

View

Business

What is the risk of investing money in American depository receipts (ADRs)??

A. ?Risks associated with the corporations in which the investments are made B. ?ADRs are not foreign stocks C. ?Inability to take funds such as dividends out of the country D. ?Risk of translation of value into domestic terms E. ?Risk of translation of information into domestic terms

View

Business