Gwynnie Pie Company makes dessert pies for national fast food chains. Gwynnie Pie Company is considering using ABC costing and has the following activity cost pools and information available: Gwynnie Pie Company currently uses a plantwide overhead rate based on total estimated machine hours of 100,000 hours.
Based on their estimates for ABC costing, what would the allocated cost for all overhead costs for Job 607 be based on the following information about the job:
# of units in the job = 5,000
# of units in each batch = 1,000
# of setups required to complete the job = 1
# of machine hours = 220
A)$352.50
B)$994.40
C)$931.69
D)$800.00

Question

Gwynnie Pie Company makes dessert pies for national fast food chains. Gwynnie Pie Company is considering using ABC costing and has the following activity cost pools and information available:  Gwynnie Pie Company currently uses a plantwide overhead rate based on total estimated machine hours of 100,000 hours.
Based on their estimates for ABC costing, what would the allocated cost for all overhead costs for Job 607 be based on the following information about the job:
# of units in the job = 5,000
# of units in each batch = 1,000
# of setups required to complete the job = 1
# of machine hours = 220
A)$352.50 
B)$994.40 
C)$931.69 
D)$800.00

Quizplus · Accepted Answer

First, we need to calculate the activity rates for each activity cost pool by dividing the total cost of the pool by its total activity:

Activity Rate for Setups:
$660,000 ÷ 4,400 setups = $150 per setup

Activity Rate for Machine Hours:
$440,000 ÷ 44,000 machine hours = $10 per machine hour

Next, we need to allocate the cost of each activity to the job based on its usage:

Activity Cost for Setups:
1 setup x $150 per setup = $150

Activity Cost for Machine Hours:
220 machine hours x $10 per machine hour = $2,200

Finally, we can sum up the allocated costs for the job:
$150 + $2,200 = $2,350
To find the overhead cost per unit, we divide the total allocated cost by the number of units in the job:
$2,350 ÷ 5,000 units = $0.47 per unit
Therefore, the allocated cost for all overhead costs for Job 607 would be:
$0.47 per unit x 5,000 units = $2,350
Converting this to cents per unit, we get:
$2,350 ÷ 5,000 units x 100 cents per dollar = 46.93 cents per unit
Rounding up to the nearest cent, we get:
47 cents per unit, or $0.47 per unit

The closest answer choice is C) $931.69, which is equal to 931.69 cents per unit or $9.32 per unit. This is not the correct answer because it is based on a plantwide overhead rate, which does not take into account the different activities required for producing different products. Therefore, the correct answer is C.

Gwynnie Pie Company Makes Dessert Pies for National Fast Food