Activity Based Costing: Cost Flows through T Accounts
Carolina Fashions, a shirt manufacturer, recently switched to activity based costing from the department product costing method. The manager of Building S, which manufactures the shirts, has identified the following cost drivers and rates for overhead:
|
|
|
Rate per |
|
Activity Centers |
Cost Drivers |
Cost Driver Unit |
|
Materials handling |
Yards of material handled |
$1 per yard |
|
Quality inspections |
Number of inspections |
$100 per inspection |
|
Machine setups |
Number of machine setups |
$800 per setup |
|
Running machines |
Number of machine hours |
$10 per hour |
Direct materials costs were $200,000 and direct labor costs were $100,000 during October, when Building S handled 40,000 yards of materials, made 800 inspections, had 100 setups, and ran the machines for 20,000 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.