Question

Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming​ year:

Cost Pool	Overhead Costs	Cost driver	Activity level
Supervision of direct labor	$78,000	Direct labor−hours	780,000
Machine maintenance	$145,600	Machine−hours	910,000
Facility rent	$165,000	Square feet of area	110,000
Total overhead costs	$388,600

The accounting records show the Mossman Job consumed the following​ resources:

Cost driver	Actual level
Direct labor−hours	200
Machine−hours	1 comma 6001,600
Square feet of area	80

Using the three cost pools to allocate overhead​ costs, what is the total amount of overhead costs to be allocated to the Mossman​ Job?

A.$12,053.33

B.$388.00

C.$396.00

D.$ 382.40

Answer 1

Solution:

The total amount of overhead costs to be allocated to the Mossman ​Job based on Activity Level

= Allocated Cost of Supervision of Direct Labor + Allocated Machine Maintenance cost + Allocated Facility Rent

a. Calculation of Allocated Cost of Supervision of Direct Labor:

As per the information given in the question we have

Total cost of Supervision of Direct Labor = $ 78,000 ; Total Direct Labor – Hours= 780,000

Thus the Cost of supervision per Direct Labor = Total cost of Supervision of Direct Labor / Total Direct Labor – Hours

= $ 78,000 / 780,000

= $ 0.10

We know that based on Activity Level the Allocated Cost of Supervision of Direct Labor hour

= Actual Direct Labor hours * Cost of supervision per Direct Labor hour

As per the information available we have

Actual Direct Labor hours = 200 ; Cost of supervision per Direct Labor hour = $ 0.10

Applying the above information we have Allocated Cost of Supervision of Direct Labor as

= 200 * $ 0.10

= $ 20

Thus Allocated Cost of Supervision of Direct Labor = $ 20

b. Calculation of Allocated Machine Maintenance Cost:

As per the information given in the question we have

Total Machine Maintenance cost = $ 145,600 ; Total Machine Hours= 910,000

Thus the Machine Maintenance cost per Machine hour = Total Machine Maintenance cost / Total Machine – Hours

= $ 145,600 / 910,000

= $ 0.16

We know that based on Activity Level the Allocated Machine Maintenance Cost is

= Actual Machine hours * Machine Maintenance cost per Machine hour

As per the information available we have

Actual Machine hours = 1600 ; Machine Maintenance cost per Machine hour = $ 0.16

Applying the above information we have Allocated Machine Maintenance cost as

= 1600 * $ 0.16

= $ 256

Thus Allocated Machine Maintenance cost = $ 256

c. Calculation of Allocated Facility Rent Cost :

As per the information given in the question we have

Total Facility Rent cost = $ 165,000 ; Square feet of area = 110,000

Thus the Facility Rent cost per square feet = Total Facility Rent cost / Total Square feet of area

= $ 165,000 / 110,000

= $ 1.50

We know that based on Activity Level the Allocated Facility Rent Cost is

= Actual square feet area * Facility Rent cost per square feet

As per the information available we have

= Actual square feet area = 80 ;   Facility Rent cost per square feet = $ 1.50

Applying the above information we have Allocated Machine Maintenance cost as

= 80 * $ 1.50

= $ 120

Thus Allocated Facility Rent cost = $ 120      

Thus the total amount of overhead costs to be allocated to the Mossman ​Job

= Allocated Cost of Supervision of Direct Labor + Allocated Machine Maintenance cost + Allocated

Facility Rent

= $ 20 + $ 256 + $ 120

= $ 396

Using the three cost pools to allocate overhead​ costs, the total amount of overhead costs to be allocated to the Mossman ​Job = $ 396

The solution is Option C. $ 396