Response to the following problem:
Texas Co. established the following overhead cost pools and cost drivers:
Overhead Cost Pool Budgeted Estimated Overhead Cost Driver Cost Driver Level
Quality controls $780,000 # of inspections 26,000 inspections
Machine setups $720,000 # of setups 12,000 setups
Other overhead costs $900,000 # of machine hrs 50,000 machine hrs
Total overhead costs $2,400,000
A recent order for sailboats used:
Quality inspections 750 inspections
Machine setups 500 setups
Machine hours (MHs) 2,400 machine hours
Required:
a. What is the overhead rate per machine hour if the number of machine hours (MHs) is used as a single cost driver under traditional costing system?
b. Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver?
c. Utilizing ABC, how much total overhead is assigned to the order?