Southwest Components recently switched to activitybased cost

Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates:

Direct materials costs were $287,000 and direct labor costs were $146,000 during July, when the Fabrication Department handled 3,600 pounds of materials, made 780 inspections, had 30 setups, and ran the machines for 14,000 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.

Activity Centers	Cost Drivers	Rate per Cost Driver Unit
Materials handling	Pounds of material handled	$	18	per pound
Quality inspections	Number of inspections	$	220	per inspection
Machine setups	Number of machine setups	$	2,900	per setup
Running machines	Number of machine-hours	$	25.00	per hour

Solution

Raw material Explanation Debit Explanation Credit Bal (assumed) 0 0 Work in process 287000 Wages Explanation Debit Credit Bal (assumed) 0 Work in process 146000 Overhead applied-Materials handling Explanation Debit Credit Bal (assumed) 0 Work in process (3600*18) 64800 Overhead applied-Quality inspections Explanation Debit Credit Bal (assumed) 0 Work in process (780*220) 171600 Overhead applied-Machine setups Explanation Debit Credit Bal (assumed) 0 Work in process (2900*30) 87000 Overhead applied-Running machines Explanation Debit Credit Bal (assumed) 0 Work in process (14000*25) 350000 Work in process Explanation Debit Credit Bal (assumed) 0 Raw material 287000 Wages 146000 Overhead applied-Materials handling 64800 Overhead applied-Quality inspections 171600 Overhead applied-Machine setups 87000 Overhead applied-Running machines 350000 Finished goods 1106400 1106400 1106400 Finished goods Explanation Debit Credit Bal (assumed) 0 Work in process 1106400 Bal 11064000 1106400