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: Activity Centers Cost Drivers Rate per Cost Driver Unit Materials handling Pounds of material handled $ 20 per pound Quality inspections Number of inspections $ 220 per inspection Machine setups Number of machine setups $ 2,500 per setup Running machines Number of machine-hours $ 21.00 per hour Direct materials costs were $299,000 and direct labor costs were $146,000 during July, when the Fabrication Department handled 3,500 pounds of materials, made 710 inspections, had 50 setups, and ran the machines for 17,000 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.

Raw materials

Debit           Credit

               299,000

Wages Payable

Debit           Credit

               146,000

Factory Overhead

Debit           Credit

                708,200

WIP inventory

Debit           Credit

299,000

 146,000

708,200

1,153,200

Explanation:

3,500pounds x $20 overhead per pound  = 70,000

710 inspections x $220 per inspection  =     156,200

50 setups x $2,500 per setup  =                   125,000

17,000 machine hours x $21  =                       357,000

Total applied overhead:                                 708,200

The raw material will be credited as we decrease our inventory

the Direct labor will be wages payable

the factory overhead will be credited to represent the allcoated amount

gary will be given more time to file an amended complaint.

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