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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.
Activity
Cost
Driver
Setting up machines
2,000
25 batches
Inspecting components
7,500
5,000 parts
Providing utilities
10,000
5,000 machine hours
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.

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