Question

Fellar Corp. has identified the following information: $44,500 20,100 Activity cost pools Materials handling Machine maintenance Cost drivers Number of material moves Number of machine hours 890 67,000 Required: 1. Calculate the activity rate for each cost pool. 2. Determine the amount of overhead assigned to Fellar's products if they have the following activity demands: Number of material moves Number of machine hours Product A Product B 610 280 43,000 24,000

Answer 1

Requirement 1

Activity Cost Pool	Activity rate (A/B)
Material handling	$             50.00	Per material move
Machine maintenance	$               0.30	Per machine hour

Requirement 2

	Total Activity cost
Product A	$ 43,400.00
Product B	$ 21,200.00

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Material handling	Number of material move	$        44,500.00	890	$             50.00	Per material move
Machine maintenance	Number of machine hour	$        20,100.00	67000	$               0.30	Per machine hour

.

Cost assigned to Product A
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material handling	$                     50.00	610.00	$         30,500.00
Machine maintenance	$                       0.30	43,000.00	$         12,900.00
Total Overheads assigned			$         43,400.00

.

Cost assigned to Product B
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material handling	$                     50.00	280	$         14,000.00
Machine maintenance	$                       0.30	24000	$           7,200.00
Total Overheads assigned			$         21,200.00

.

Requirement 3

	Total Activity cost
Product A	$ 39,069
Product B	$ 25,532

Alternate solution for requirement 3

	Total Activity cost
Product A	$ 42,600.00
Product B	$            27,900.00

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Material handling	Number of material move	$        44,500.00	960	$             46.35	Per material move
Machine maintenance	Number of machine hour	$        20,100.00	75000	$               0.27	Per machine hour

.

Cost assigned to Product A
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material handling	$                     46.35	600.00	$         27,812.50
Machine maintenance	$                       0.27	42,000.00	$         11,256.00
Total Overheads assigned			$         39,068.50

.

Cost assigned to Product B
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material handling	$                     46.35	360	$         16,687.50
Machine maintenance	$                       0.27	33000	$           8,844.00
Total Overheads assigned			$         25,531.50