The Thompson Company uses activity-based costing to determine product cost. Three activities and their rates have been calculated as shown below.
Setting up equipment = $500 per setup
Moving goods = $20 per move
Machining = $4 per machine hour
Thompson provided the following data from the job order cost sheet for Job #345
Direct materials
$2,000
Direct labor
1,800
Setups
1
Moves
30
Machine hours
900
A. Calculate the overhead applied to Job #345.
B. Calculate the total cost of Job #345.
C. If price is calculated by applying a 30% markup on cost, what is the price for Job #345?
D. Assume Job #345 required 2 setups, 15 moves, and 700 machine hours. Calculate the overhead applied to Job #345.
E. Assuming a 50% markup on cost, what is the price of Job #345 using the overhead rate calculated in part D.
A. To calculate the overhead applied to Job #345, we need to determine the cost for each activity and then multiply it by the respective activity usage.
For the "Setting up equipment" activity, the rate is $500 per setup. Since Job #345 required 1 setup, the cost for this activity would be 1 x $500 = $500.
For the "Moving goods" activity, the rate is $20 per move. Job #345 required 30 moves, so the cost for this activity would be 30 x $20 = $600.
For the "Machining" activity, the rate is $4 per machine hour. Job #345 required 900 machine hours, so the cost for this activity would be 900 x $4 = $3,600.
Next, we add up the costs for each activity to get the overhead applied to Job #345:
$500 + $600 + $3,600 = $4,700.
Therefore, the overhead applied to Job #345 is $4,700.
B. To calculate the total cost of Job #345, we need to add the direct materials cost, direct labor cost, and the overhead applied.
Given data:
Direct materials cost = $2,000
Direct labor cost = $1,800
Overhead applied = $4,700
Total cost of Job #345 = Direct materials + Direct labor + Overhead applied
Total cost of Job #345 = $2,000 + $1,800 + $4,700 = $8,500
Therefore, the total cost of Job #345 is $8,500.
C. To calculate the price for Job #345 by applying a 30% markup on the cost, we need to add the given markup percentage to the total cost.
Markup percentage = 30%
Price for Job #345 = Total cost + (Total cost x Markup percentage)
Price for Job #345 = $8,500 + ($8,500 x 0.30) = $8,500 + $2,550 = $11,050
Therefore, the price for Job #345, with a 30% markup on cost, is $11,050.
D. To calculate the overhead applied to Job #345 with the new activity usage, we need to recalculate the cost for each activity using the updated values and then add them up.
Updated activity usage:
Setups = 2
Moves = 15
Machine hours = 700
For the "Setting up equipment" activity:
Cost = 2 x $500 = $1,000
For the "Moving goods" activity:
Cost = 15 x $20 = $300
For the "Machining" activity:
Cost = 700 x $4 = $2,800
Overhead applied to Job #345 = Cost for each activity
Overhead applied to Job #345 = $1,000 + $300 + $2,800 = $4,100
Therefore, the overhead applied to Job #345, with 2 setups, 15 moves, and 700 machine hours, is $4,100.
E. Assuming a 50% markup on cost and using the overhead rate calculated in part D, we can calculate the price for Job #345.
Markup percentage = 50%
Price for Job #345 = Total cost + (Total cost x Markup percentage)
Price for Job #345 = $8,500 + ($8,500 x 0.50) = $8,500 + $4,250 = $12,750
Therefore, the price for Job #345, with a 50% markup on cost and using the overhead rate calculated in part D, is $12,750.