Vintage Fun makes old-fashioned style roller skates and skateboards. Annual production and sales of roller skates is 950 units, where as 1,750 skateboards are made and sold. Company has traditionally utilized direct labor hours to assign its overhead to products. Roller skates need 2.5 direct labor hours per unit, where as skateboards need 1.25 direct labor hours per unit. Total evaluated overhead for period is $114,300. Company is looking at possibility of changing to the activity-based costing system for products. If company used the activity-based costing system, it would have given three activity cost pools:
Activity cost pool Estimated overhead costs Roller Skates Skateboards Total
Setup cost $6,550 375 280 655
Engineering cost $16,500 450 650 1,100
Maintenance cost $91,250 2,375 2,188 4,563
i. Find predetermined overhead allocation rate utilizing traditional costing system?
ii. Find overhead cost per skateboard utilizing activity-based costing system?