Question

Vandalay Industries manufactures two​ products: toasters and blenders. The annual production and sales of toasters is​ 2,100 units, while​ 1,600 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per​ unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is​ $149,315. The company is looking at the possibility of changing to an activity−based costing system for its products. If the company used an activity−based costing​ system, it would have the following three activity cost​ pools:

		Expected activity
Activity cost pool	Estimated overhead cost	Toasters	Blenders	Total
Setup costs	​$8,585	215 batches	450 batches	665 batches
Engineering costs	​$73,980	870 engineering	820 engineering hours	​1,690 engineering hrs
Maintenance costs	​$66,750	​2,725 direct labor hours	​1,195 direct labor hours	​3,920 direct labor hours
Total	​$149,315

The overhead cost per Blenders using the traditional costing system would be closest to

​(Round all answers to two decimal​ places.)

Answer 1

Answer

• Total Overhead cost = $ 149315
• Total Direct labor hours = 3920 DLHs
• Traditional Overhead rate = 149315 / 3920 = $ 38.09
• DLH used by 1 unit of Blender = 1 DLH
• Overhead cost per Blender = 1 DLH x $ 38.09
  = $ 38.09
• Correct Answer = $ 38.09 or Closest to $ 38.09