Question

The following estimated overhead cost information is available for NOP Corporation:

Activity                           Allocation Base                   OH Cost

Purchasing                    # of Purchase Orders         $600,000

Receiving                      # of Shipments                    $50,000

Machine Set-Ups          # of Setups                          $240,000

Quality Control             # of Inspections                   $160,000

During the year, 60,000 purchase orders were issued; 25,000 shipments were received; 2000 setups; and 10,000 inspections. Direct labor hours were 20,000.

A. What is the cost allocation for each of the four activities using ABC costing?

B. What is the Predetermined overhead rate using the traditional method (direct labor hours) -- HINT: Total estimated overhead cost is the total for all of the activities.

Answer 1

Answer-A:

Activity cost pool Purchasing Receiving Machine set-ups Quality control Total cost $ 600,000 50,000 240,000 160,000 Total $ 1,050,000 Total activity Rate per activity 60,000 $ 10.00 per order 25,000 2.00 per shipment 2,000 120.00 per set-up 10,000 16.00 per inspection

Answer-B:

Predetermined overhead rate = $1,050,000 / 20,000 DLH = $52.50