Scannell Industries manufactures

Scannell Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $ 1,820, 000 in total manufacturing overhead costs in the upcoming year and will use 10,000 machine hours.

Up to this​ point, hazardous waste disposal fees have been absorbed into the plantwide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process.​ Recently, the company has been experiencing significantly increased waste disposal fees for hazardous waste generated by certain products​, and as a​ result, profit margins on all products have been negatively impacted. Company management wants to implement an​ activity-based costing system so that managers know the cost of each product​, including its hazardous waste disposal costs.

Expected usage and costs for manufacturing overhead activities for the upcoming year are as​ follows:

During the​ year, Job 352 is started and completed. Usage for this job​ follows:

Read the requirements

.

Requirement 1. Calculate the cost of

Job 352Job 352

using the traditional plantwide manufacturing overhead rate based on machine hours.

Begin by calculating the plantwide overhead rate. First identify the formula used to compute the plantwide overhead​ rate, then compute the rate. ​(Abbreviations used: MOH​ = manufacturing​ overhead; mfg.​ = manufacturing)

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Plantwide mfg. overhead rate

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Calculate the cost of Job 352.

Job Cost Record

Manufacturing

JOB 352

Costs

Total job cost

Requirement 2. Calculate the cost of Job 352 using​ activity-based costing.

Begin by calculating the allocation rate for each activity. First determine the formula to compute the allocation rate in an​ activity-based costing​ system, then compute the rate for each activity. ​(Abbreviations used: est.​ = estimated,​ MH=machine hours,​ Mach.=Machine, Eng.=Engineering)

Activity cost

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allocation rate

Mach. maintenance

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per MH

Eng. change orders

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per order

Waste disposal

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per pound

Calculate the cost of Job 352 using​ activity-based costing.

Job Cost Record

Manufacturing

JOB 352

Costs

Total job cost

Requirement 3. If you were a​ manager, which cost estimate would provide you more useful​ information? How might you use this​ information?

1. The cost estimate based on the ________________________ would provide more useful information because this cost estimate.

A. activity-based costing rates B. traditional plantwide manufacturing overhead rate

2. takes into account __________________________ This information can be used to

____________________.

2) Farmer's Fine Furnishings manufactures upscale custom furniture. Farmer's

currently uses a plantwide overhead rate based on direct labor hours to allocate its

$ 1,290,000 of manufacturing overhead to individual jobs.​ However, Deana Howards​,

owner and​ CEO, is considering refining the​ company's costing system by using departmental overhead rates.​ Currently, the Machining Department incurs $ 870,000 of manufacturing overhead while the Finishing Department incurs $ 420,000 of manufacturing overhead. Deana has identified machine hours​ (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor​ (DL) hours as the primary cost driver in the Finishing Department.