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After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze the overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 6.15.

Direct materials 2,500 Number of parts

Direct labor 3,500 Machine hours

Batches 2 batches

Required:

1. What is the total cost of Job 6.15 if Business Solutions applies overhead at 50% of direct labor cost? 2. What is the total cost of Job 6.15 if Business Solutions uses activity-based costing?

3. Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15? Explain.