Exercise - Computing overhead rates based on different costing drivers
Fenya Industries produces two surge protectors: K2761 with six outlets and D3354 with eight outlets and two telephone line connections. Because of these product differences, the company plans to use activity-based costing to allocate overhead costs. The company has identified four activity pools.
|
Activity Pools
|
Cost Pool Total
|
Cost Driver
|
|
Machine setup
|
$144,000
|
Number of setups
|
|
Machine operation
|
360,000
|
Number of machine hours
|
|
Quality control
|
57,600
|
Number of inspections
|
|
Packaging
|
38,400
|
Number of units
|
|
Total overhead cost
|
$600,000
|
|
Expected activity for each product follows:
|
|
Number of setups
|
Number of machine hours
|
Number of inspections
|
Number of units
|
|
K2761
|
48
|
1,400
|
78
|
25,000
|
|
D3354
|
72
|
2,600
|
172
|
15,000
|
|
Total
|
120
|
4,000
|
250
|
40,000
|
Required
a. Compute the overhead rate for each activity pool.
b. Determine the overhead cost allocated to each product.