Cost Pools and Cost Drivers Based on a Recent Study

question 106

Essay

Cost Pools and Cost Drivers Based on a recent study of its manufacturing operations Johnston Manufacturing Corporation has identified six resource consumption cost drivers. These cost drivers and their budgeted activity levels for the coming year are: The firm has budgeted the following costs for the year: With the exception of the factory space cost pool, which uses machine-hours as the activity consumption cost driver, other cost pools have identical resource and activity consumption cost drivers.
Required:
1. Identify the most appropriate activity cost pool for each of the cost items and cost driver for each activity cost pool you identified.
2. Johnston has received a request to quote the price for 4,000 units of a new product. The production will require 100 engineering-hours and 4,250 machine-hours. What is the manufacturing overhead per unit the firm should use in determining the price?

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Definitions:

Aging Accounts Receivable

A method of categorizing accounts receivable based on how long an invoice has been outstanding, used to identify potential bad debts.

Period of a Note

The duration of time from when a promissory note is issued until it is due for repayment.

Contract Date

The specific date on which a contract is signed or becomes enforceable.

Maturity Date

The final payment date of a loan or financial instrument, at which point the principal (and all remaining interest) must be paid.