uses several cost pools, organized by activity, to allocate overhead costs. What are the five steps of activity-based costing, and how would this method work for SailRite?Īnswer: Activity-based costing (ABC) A method of costing that uses several cost pools, and therefore several predetermined overhead rates, organized by activity to allocate overhead costs. Question: Suppose the managers at SailRite Company decide that the benefits of implementing an activity-based costing system would exceed the cost, and thus the company should use activity-based costing to allocate overhead. Understand how to use the five steps of activity-based costing to determine product costs.Something eventually has to be done with the total amount of underallocated or overallocated overhead at the end of the year, but that issue is beyond the scope of this question. The difference between the actual and applied manufacturing overhead is the underallocated or overallocated manufacturing overhead.
The manufacturing overhead incurred (the actual manufacturing overhead costs) was not included because only the manufacturing overhead applied is included to calculate the total manufacturing costs of jobs. Indirect materials was not separately included because indirect materials is a part of overhead. Direct materials was $180,000, direct manufacturing labor was $214,000 and manufacturing overhead applied was $226,000, for a total of $620,000. The cost of jobs completed in a month is the total of direct materials, direct manufacturing labor, and manufacturing overhead applied. Some of this information may not be needed. The question asks about the cost of jobs completed in a particular month.
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