Question

Tri-bikes manufactures two different levels of bicycles: the Standard and the Extreme. The total overhead of $300,000 has traditionally been allocated by direct labor hours, with 160,000 hours for the Standard and 40,000 hours for the Extreme. After analyzing and assigning costs to two cost pools, it was determined that machine hours is estimated to have $200,000 of overhead, with 4,000 hours used on the Standard product and 1,000 hours used on the Extreme product. It was also estimated that the setup cost pool would have $100,000 of overhead, with 1,000 hours for the Standard and 1,500 hours for the Extreme. What is the overhead rate per product, under traditional and under ABC costing? Traditional ABC Overhead per Standard product $ Overhead per Extreme product $

Answer 1

	Traditional	ABC
Overhead per Standard product	240000	200000
Overhead per Extreme product	60000	100000

Workings:
Traditional:
Overhead per Standard product	240000	=300000/(160000+40000)*160000
Overhead per Extreme product	60000	=300000/(160000+40000)*40000
ABC:
Overhead per Standard product
Machining	160000	=200000/(4000+1000)*4000
Setup	40000	=100000/(1000+1500)*1000
Total	200000
Overhead per Extreme product
Machining	40000	=200000/(4000+1000)*1000
Setup	60000	=100000/(1000+1500)*1500
Total	100000