Clicker Question Preparation Guide Ch 4 Clicker questions will be asked in class based on your completion of this preparation guide Example in class question What is the answer to Question 3 b You will not have time to complete this guide in class 1 Milton Manufacturing has three departments or activities in its manufacturing process machine setups machining and inspections Estimated annual overhead cost for each activity is 80 000 162 500 and 28 000 respectively The expected annual use for each activity is 1 000 setups 12 500 machine hours and 875 inspections Compute the overhead rate for each activity Machine Setups Machining Inspections 2 Wilson Bradley Associates a law firm uses Activity Based Costing for assigning overhead costs The following budgeted data for each of the activity cost pools is provided for the year 2016 Activity Cost Pools Researching legal issues Meeting with clients Preparing legal documents Estimated Overhead 36 800 1 797 600 448 000 2 282 400 Expected Use of Cost Drivers per Activity ABC Rate per Activity 800 research hours 8 400 professional hours 28 000 pages During 2017 the firm experienced actual cost driver use as follows 820 research hours 8 550 professional hours and prepared 27 600 document pages a Compute the total overhead applied during 2017 using ABC b If actual overhead costs incurred during 2017 were 2 300 000 was overhead under or overapplied during the year 3 Kustom Kar Parts expects to incur 480 000 in overhead costs in its three main production departments this year setup costs 30 000 machining costs 330 000 and packing costs 120 000 to make two models of their exhaust systems The setup department expects to perform 40 setups per year the machining department expects to work 5 000 hours per year and the packing department expects to pack 500 orders per year Manufacturing information about Kustom s two exhaust system models follows Number of setups Machining hours Orders packed Number of products manufactured EX 1 EX 2 20 1 000 150 600 20 4 000 350 400 Total Expected Use of Cost Drivers 40 5 000 500 1 000 a If Kustom Kar Parts use a traditional costing method for applying overhead costs to production how much overhead would be assigned to Product EX 1 each year assuming the use of machining hours as an application base b Using Activity Based Costing how much overhead would be assigned to Product EX 1 each year assuming the expected use of cost drivers for EX 1
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