The Controller for Precise Manufacturing Has Established the Following Overhead

question 4

Essay

The controller for Precise Manufacturing has established the following overhead cost pools and cost drivers:
$\begin{array}{lll}&\text { Budgeted }\\\underline{\text { Overhead Cost Pool }} & \underline{\text { Overhead Cost }} & \underline{\text { Cost Driver }} \\ \text { Machine setups } & \$ 300,000 & \text { Number of setups } \\\text { Material handling } & 80,000 & \text { Units of raw material } \\\text { Quality control } & 90,000 & \text { Number of }\\\text { inspection } && \text { inspections } \\\text { Other overhead costs } & \underline{150,000}& \text { Machine hours } \\\text { Total } &\underline{\$ 620,000} \\\end{array}$


$\begin{array}{lll}&\text { Budgeted Level }\\\underline {\text { Overhead Cost Pool } }& \underline {\text { for Cost Driver }} & \underline {\text { Pool Rate } }\\\text { Machine setups } & 300 \text { setups } & \$ 1,400 \text { per setup } \\\text { Material handling } & 40,000 \text { units } & \$ 2.00 \text { per unit } \\\text { Quality control } & 800 \text { inspections } & \$ 60 \text { per inspection } \\\text { Other overhead } & 25,000 \text { machine } & \$ 10 \text { per machine hour }\\&\text { hours }\\\end{array}$


$\text { Order No. } 905 \text { has the following production requirements. }$

$\text { Machine setups: 10 }$
$\text { Raw material: 13,400 units }$
$\text { Inspections: 20 }$
$\text { Machine hours: 900 }$ Required:
A. Compute the total overhead that should be assigned to Order No. 905 by using activity-based costing.
B. Suppose that Precise were to use a single, predetermined overhead rate based on machine hours. Compute the rate per hour and the total overhead assigned to Order No. 905.
C. Discuss the merits of an activity-based costing system in comparison with a traditional costing system.

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Definitions:

Merchandise Sold

This term refers to products that have been sold and are in the process of being delivered to the customer, usually recognized as revenue in retail or wholesale businesses.

Inventory Control

A system used by a business to manage its inventory effectively, ensuring there are adequate supplies without overstocking.

Receiving Report

A document that records the details of goods received by a company, including date received, quantity, and condition.

Initial Record

Initial record refers to the first entry or recording of a financial transaction or event in the accounting system.