Cost Pools and Cost Drivers Based on a Recent Study

question 13

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:

Redistribution

The process of reallocating income, wealth or resources from certain groups within society to others, often through taxation and welfare systems.

John Stuart Mill

A British philosopher and economist known for his contributions to utilitarianism and political economy.

Utilitarian Justice

A concept in ethics focusing on the greatest good for the greatest number of people as the criterion of justice.

Rawlsian Justice

A theory of justice that emphasizes fairness as the most important aspect of an ethical society, often associated with the "veil of ignorance" thought experiment.