Question

Question 4 (9 Marks) Pomme Company uses activity-based costing to compute product costs for external reports. The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated costs and activities for the current year are presented below for the three activity centres: Estimated Overhead Costs $20,400 $52,800 $78,000 Activity Centre Batch Setups Material Handling General Factory Expected Activity 1.200 2,400 2,600 Actual costs and activities for the current year were as follows: Actual Overhead Costs $20,740 $52,360 $77,590 Activity Centre Batch Setups Material Handling General Factory Actual Activity 1.230 2,470 2,680 Required: a) Calculate the overhead rates per Activity Centre and how much total overhead was applied to products during the year? (6 marks) b) By how much was overhead overapplied or underapplied? (Be sure to clearly label your answer as to whether the overhead was overapplied or underapplied for each activity centre as well as for the total.) (3 Marks)

Answer 1

Activity Rate (A/B) a) Determination of Activity rates :- Estimated Expected Activity Centre Overhead Activity (B) Cost (A) Batch Setups 20,400 1,200 Material Handling 52,800 2,400 General Factory 78,000 2,600 17.00 22.00 30.00 Determination of Applied overhead :- Activity Actual Activity Centre Rate (A) Activity (B) Batch Setups 17.00 1,230 Material Handling 22.00 2,470 General Factory 30.00 2,680 Activity Rate (AB) 20,910 54,340 80,400 b) Determination of Over/(Under) applied overhead :- Actual Applied Over/(Under) Applied Activity Centre Overhead Overhead (A) Overhead (A-B) (B) 20,910 Batch Setups Material Handling General Factory Total 20,740 52,360 77,590 150,690 54,340 80,400 170 Overapplied 1,980 Overapplied 2,810 Overapplied 4,960 Overapplied 155,650