Fountain Company Uses Activity-Based Costing (ABC) for Allocating Manufacturing Overhead

question 8

Essay

Fountain Company uses activity-based costing (ABC) for allocating manufacturing overhead costs to jobs and it has established the following cost drivers and rates: $\begin{array}{lll} \underline {\text { Activity }} & \underline {\text { Cost Driver }} & \underline {\text { Rate } }\\ \text { Material handling } & \text { Number of parts used } & \$ 5.00 \text { per part } \\\text { Machine setups }& \text { Number of production runs } & \$ 2.000 .00 \text { per run } \\\text { Assembly and inspection } & \text { Number of direct labor hours } & \$ 25.00 \text { per DLH } \\\text { Quality control }&\text { Number of units inspected } & \$ 4.00 \text { per unit } \end{array}$
During April, Job #7598 produced 2,500 units and required the following activity: 1,200 parts, 2 production runs, and 225 direct labor hours.
(a.) Calculate the amount of manufacturing overhead applied to Job #7598.
(b.) Explain the advantage of using the ABC approach.

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Definitions:

Sole Proprietorship

A business structure where a single individual owns and operates the entire business, bearing all financial risks and responsibilities.

Partnership

A lawful business structure involving two or more people who distribute both the management responsibilities and the profits.

Sole Proprietorship

A business structure where a single individual owns and runs the business, responsible for all its debts and liabilities.

Debt Financing

Borrowing money that must be repaid over time, with interest.