Jones Construction Currently Uses Traditional Costing Where Overhead Is Applied

Multiple Choice

Jones Construction currently uses traditional costing where overhead is applied based on direct labour hours.Using traditional costing,the applied overhead rate is $20 per direct labour hour.
They are considering a switch to activity-based costing (ABC) .The company controller has come up with preliminary overhead rates for each of the following activities:
$\begin{array}{lll}\text { Activity } & \text { Allocation Base } & \text { Overhead rate } \\\hline \text { Material delivery and handling } & \text { Number of deliveries } & \$ 100 \text { per delivery } \\\text { Inspections } & \text { Number of inspections } & \$ 75 \text { per inspection } \\\text { Supervision } & \text { Hours of supervisor time } & \$ 30 \text { per supervisor hour } \\\text { Purchasing } & \text { Number of purchase orders } & \$ 60 \text { per purchase order }\end{array}$

One of the company's current jobs has the following information available:
$\begin{array}{lr} \text { Direct labour hours } & \text { 50 hours } \\ \text {Number of deliveries } &2\\ \text { Number of inspections } &3\\ \text {Hours of supervisor time } &2\\ \text { Number of purchase orders } &5\\\end{array}$

Which of the following statements is true when comparing the total overhead allocated to the job using traditional versus ABC costing?

A) ABC costing will yield $215 less in overhead cost being allocated to the job.
B) ABC costing will yield $735 less in overhead cost being allocated to the job.
C) ABC costing will yield $545 more in overhead cost being allocated to the job.
D) ABC costing will yield $785 more in overhead cost being allocated to the job.