Thurman Brothers Construction Manufactures and Installs Standard and Custom-Made Cabinetry

question 43

Essay

Thurman Brothers Construction manufactures and installs standard and custom-made cabinetry for residential homes.Last year,the company incurred $600 000 in overhead costs when a total of 10 000 direct labour hours were incurred.After implementing activity-based costing (ABC),the company's accountant identified the following related information:
$\begin{array}{llc}&&\text { Proportion of }\\\text { Activity } & \text { Allocation Base } & \text { Overhead Cost } \\\hline \text { Material delivery and handling } & \text { Number of deliveries } & 30 \% \\\text { Inspections } & \text { Number of inspections } & 25 \% \\\text { Supervision } & \text { Hours of supervisor time } & 20 \% \\\text { Purchasing } & \text { Number of purchase orders } & 25 \%\end{array}$
The number of activities for standard and custom-made cabinets is as follows:
$\begin{array}{lrr}&\underline{\text { Standard }} &\underline{\text { Custom-made }}\\\text { Number of deliveries } & 500 & 700 \\\text { Number of inspections } & 600 & 400 \\\text { Hours of supervisor time } & 1000 & 2000 \\\text { Number of purchase orders } & 800 & 400\end{array}$
During the past year,Thurman accepted a customer order for a set of custom-made cabinets that would require the following:
$\begin{array}{llcc} \text {Direct labour hours } &45\\ \text {Number of deliveries } &4\\ \text {Number of inspections } &5\\ \text { Hours of supervisor time } &2\\ \text {Number of purchase orders } &4\\\end{array}$

Required:
A. How much cverhead would be appled to the job if trachional costing using direct labour hours as the cost driver were used?

B. Using activity-based costing (ABC), what wauld be the averhead rate far each of the four activities?

C. Using activity-based costing (ABC), what wauld be the tatal averhead applied to the abuve jab?

D. Compare the averhead applied using traditional costing to ABC costing and remark an the difference. Which ane do you think is more accurate?

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Definitions:

Organizational Commitment

The psychological attachment and loyalty of an employee towards their organization, often leading to higher levels of participation and productivity.

Psychological Withdrawal

A defense mechanism where an individual emotionally detaches or disengages from stressful or threatening situations to protect their psychological well-being.

Employee Turnover

The rate at which employees leave a workforce and are replaced by new hires, which can affect a company's stability and cost.