The Bridgewater Company recently switched to activity based costing ABC. The prior method allocated overhead costs at the rate of $200 per machine hour. The manager of Department J has estimated the following cost drivers and rates:
During May, Bridgewater purchased and used $400,000 of direct materials at $40 per ton. There were 32 production runs using a total of 48,000 machine hours in May. The manager of Department J needed 48 inspections
Required:
(a) Calculate the total overhead costs that would have been allocated to production using the prior method
(b) Calculate the total overhead costs that would be allocated using Activity-Based Costing
(c) Why is activity-based information useful for making business decisions?

Question

The Bridgewater Company recently switched to activity based costing ABC. The prior method allocated overhead costs at the rate of $200 per machine hour. The manager of Department J has estimated the following cost drivers and rates:
  During May, Bridgewater purchased and used $400,000 of direct materials at $40 per ton. There were 32 production runs using a total of 48,000 machine hours in May. The manager of Department J needed 48 inspections
Required:
(a) Calculate the total overhead costs that would have been allocated to production using the prior method
(b) Calculate the total overhead costs that would be allocated using Activity-Based Costing
(c) Why is activity-based information useful for making business decisions?

Quizplus · Accepted Answer

The Answer of The Bridgewater Company recently switched to activity based costing ABC. The prior method allocated overhead costs at the rate of $200 per machine hour. The manager of Department J has estimated the following cost drivers and rates:
  During May, Bridgewater purchased and used $400,000 of direct materials at $40 per ton. There were 32 production runs using a total of 48,000 machine hours in May. The manager of Department J needed 48 inspections
Required:
(a) Calculate the total overhead costs that would have been allocated to production using the prior method
(b) Calculate the total overhead costs that would be allocated using Activity-Based Costing
(c) Why is activity-based information useful for making business decisions?

The Bridgewater Company Recently Switched to Activity Based Costing ABC