Question

A manufacturer uses activity-based costing to assign overhead costs to products. In the coming year it expects to incur $825,000 of costs to dispose of 3,300 tons of hazardous waste.

1. Compute the company’s cost of hazardous waste disposal per ton.
2. During the year the company disposes of 5 tons of hazardous waste in the completion of Job #125. Assign hazardous waste disposal cost to Job #125 using activity-based costing.

Short answer

1. The company’s waste disposal cost per ton is $250 per ton.
2. Hazardous cost for job #125 =$1,250.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Overhead cost

Overhead cost is indirect cost. It is incurred by company to execute manufacturing process smoothly. These costs are not directly related to product cost.

(1) Computing the company’s cost of hazardous waste disposal per ton

$\begin{array}{rcl}\mathbf{Company}\mathbf{\text{'}}\mathbf{s}\mathbf{}\mathbf{waste}\mathbf{}\mathbf{disposalcost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{ton}& \mathbf{=}& \frac{\mathbf{Expected}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{to}\mathbf{}\mathbf{be}\mathbf{}\mathbf{incurred}}{\mathbf{Expected}\mathbf{}\mathbf{tons}\mathbf{}\mathbf{to}\mathbf{}\mathbf{be}\mathbf{}\mathbf{disposed}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{825}\mathbf{,}\mathbf{000}}{\mathbf{3}\mathbf{,}\mathbf{300}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{250}\mathbf{}\mathbf{per}\mathbf{ }\mathbf{ton}\mathbf{.}\end{array}$

(2) Calculating hazardous waste disposal cost to Job #125

$\begin{array}{rcl}\mathbf{Hazaredous}\mathbf{}\mathbf{cost}\mathbf{ }\mathbf{for}\mathbf{}\mathbf{job}\mathbf{}\mathbf{\#}\mathbf{125}& \mathbf{=}& \mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{tons}\mathbf{}\mathbf{disposed}\mathbf{\times }\mathbf{Cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{ton}\\ & \mathbf{=}& \mathbf{5}\mathbf{}\mathbf{tons}\mathbf{\times }\mathbf{\$}\mathbf{250}\mathbf{}\mathbf{per}\mathbf{}\mathbf{ton}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{250}\end{array}$