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(solution) The job costing system at Smith's Custom Framing has five


The job costing system at Smith's Custom Framing has five indirect cost pools ( purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 15 intricate personalized frames, and Job 325, an order of 6 standard personalized frames. The controller wants you to compare overhead allocated under the current simple job- costing system and a newly- designed activity- based job- costing system. Total budgeted costs in each indirect cost pool and the budgeted quantity of activity driver are as follows: Budgeted Overhead Activity Driver Budgeted Quantity of Activity Driver Purchasing $ 70,000 Purchase orders processed 2,000 Material handling 87,500 Material moves 5,000 Machine maintenance 237,300 Machine- hours 10,500 Product inspection 18,900 Inspections 1,200 Packaging 39,900 Units produced 3,800 $ 453,600 Information related to Job 215 and Job 325 follows. Job 215 incurs more batch- level costs because it uses more types of materials that need to be purchased, moved, and inspected relative to Job 325. Job 215 Job 325 Number of purchase orders 25 8 Number of material moves 10 4 Machine- hours 40 60 Number of inspections 9 3 Units produced 15 6 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine- hours. 2. Compute the total overhead allocated to each job under an activity- based costing system using the appropriate activity drivers. 3. Explain why Smith's Custom Framing might favor the ABC job- costing system over the simple job-costing system, especially in its bidding process.

 


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