Question

1. Find the Activity Rate.

The following data are for the two products produced by Tadros Company. Product A Product B Direct materials $15 per unit $24 per unit Direct labor hours 0.3 DLH per unit 1.6 DLH per unit Machine hours 0.1 MH per unit 1.2 MH per unit Batches 125 batches 225 batches Volume 10,000 units 2,000 units Engineering modifications 12 modifications 58 modifications Number of customers 500 customers 400 customers Market price $30 per unit $120 per unit The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows. Costs Driver Indirect manufacturing Engineering support $24,500 Engineering modifications Electricity 34,000 Machine hours Setup costs 52,500 Batches Nonmanufacturing Customer service 81,000 Number of customers

2. Find the Assigning Overhead Cost.

Answer 1

Solution:

1. Calculation of Activity Rate.

Engineering support = Overhead cost / Engineering Modifications

Engineering support = $24,500 / (12+58) = $24,500 / 70

Engineering support = $350 per Engineering Modifications

Electricity = Overhead cost / Machine Hours

Machine Hours for Product A = Machine Hours per unit $\times$ Number of Units

Machine Hours for Product A = 0.1 Machine Hours per unit $\times$ 10,000 Units = 1,000 Machine Hours

Machine Hours for Product B = Machine Hours per unit $\times$ Number of Units

Machine Hours for Product B = 1.2 Machine Hours per unit $\times$ 2,000 = 2,400 Machine Hours

Electricity = Overhead cost / Machine Hours = $34,000 / (1,000 + 2,400) = $34,000 / 3,400 = 10 per Machine Hour.

Electricity = 10 per Machine Hour.

Set up cost = Overhead cost / Number of Batches

Set up cost = $52,500 / (125 + 225) = $52,500 / 350

Set up cost = $150 per Batch

Activity rate for Non manufacturing cost

Customer service = Overhead cost / Number of customers

Customer service = $81,000 / (500 + 400) = $81,000 / 900

Customer service = $90 per customer

2. Calculation of Assigning Over head cost

Particulars	Rate	Product A	Product B
Engineering Support	$350	$350 $\times$ 12 = $4,200	$350 $\times$ 58 = $20,300
Electricity	$10	$10 $\times$ 1,000 = $10,000	$10 $\times$ 2,400 = $24,000
Set up cost	$150	$150 $\times$ 125 = $18,750	$150 $\times$ 225 = $33,750
Total Manufacturing over head cost		$32,950	$78,050

Assigning non manufacturing overhead cost

For product A = Number of customers $\times$ rate per customer = 500 $\times$ $90 = $45,000

For product B = Number of customers $\times$ rate per customer = 400 $\times$ $90 = $36,000