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SP 21 After reading an article

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SP 21 After reading an article about activity-based costing in a trade journal for the furniture industry,
Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent
month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional
information about overhead follows.

Setting up machines . . . . . . . . . . . . $20,000 25 batches
Inspecting components . . . . . . . . . $ 7,500 5,000 parts
Providing utilities . . . . . . . . . . . . . . $10,000 5,000 machine hours
Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to
Job 6.15.
Direct materials . . . . . . . . . . $2,500
Direct labor . . . . . . . . . . . . . $3,500
Batches . . . . . . . . . . . . . . . . . 2 batches
Number of parts. ..... 400 parts
Machine hours .... 600 machine hours

Required
1. What is the total cost of Job 6.15 if Business Solutions applies overhead at 50% of direct labor cost?
2. What is the total cost of Job 6.15 if Business Solutions uses activity-based costing?
3. Which approach to assigning overhead gives a better representation of the costs incurred to produce
Job 6.15? Explain.

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