Activity Based Costing: Cost Flows through T Accounts
Delta Parts, Inc., recently switched to activity based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:
|
|
|
Rate per |
|
Activity Centers |
Cost Drivers |
Cost Driver Unit |
|
Materials handling |
Pounds of material handled |
$18 per pound |
|
Quality inspections |
Number of inspections |
$225 per inspection |
|
Machine setups |
Number of machine setups |
$2,700 per setup |
|
Running machines |
Number of machine hours |
$22.50 per hour |
Direct materials costs were $300,000 and direct labor costs were $150,000 during July, when the Fabrication Department handled 3,750 pounds of materials, made 750 inspections, had 40 setups, and ran the machines for 15,000 hours.
Required
Use T accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work in Process Inventory and out to Finished Goods Inventory. Use the accounts Materials Inventory, Wages Payable, Work in Process Inventory, Finished Goods Inventory, and four overhead applied accounts.