Question

Superindo Company manufactures a variety of high- and low-volume products, including Product 365, in its Bekasi-West Java plant. The following information pertains to the most recent year: Total for Product 365 Total for Bekasi-West Java Unit level overhead $ 200,000 Batch-Level Overhead 300,000 Product-Level Overhead 500,000 Plant-Level Overhead 400,000 Total Overhead $1,400,000 Unit produced 5,000 Direct Labor hours 20,000 Machine hours 10,000 Setups 120 Setup hours 500 Design changes 40 Design hours 280 4,000 Required: 1. If the Bekasi-West Java Plant accumulates all overhead in a single cost pool and allocates it on the basis of machine-hours, how much overhead cost will be allocated to a unit of product 365? 2. If the Bekasi-West Java Plant uses Activity-Based Costing System with setups as the driver for all batch-level overhead, design hours as the driver for all product-level overhead, and machine hours as the driver for all unit and plant-level overhead, how much overhead costs will be allocated to a unit of Product 365?

Answer 1

1.
Overhead rate = $1400000 / 10000 = $140 per machine hour
Overhead allocated to Product 365 = $140 x 90 = $12600
Overhead cost per unit = $12600 / 100 = $126 per unit

2.

Activity	Cost	Estimated Activity Volume		Cost per cost driver
a	b	c	d	e = b/c
Unit level	$     2,00,000.00	10000	Machine hours	$                     20.00	per machine hour
Batch level	$     3,00,000.00	120	Setups	$               2,500.00	per setup
Product level	$     5,00,000.00	4000	Design hours	$                125.000	per design hours
Plant Level	$     4,00,000.00	10000	Machine hours	$                  40.000	per machine hour
	$   14,00,000.00
Overhead allocation
Unit level	$           1,800.00	=90*20
Batch level	$        15,000.00	=6*2500
Product level	$        35,000.00	=280*125
Plant Level	$           3,600.00	=90*40
	$        55,400.00
Units	100
Overhead cost per unit	$              554.00