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Tupperman Ltd. has $750,000 of total overhead costs. It currently uses a traditional costing system where...

Tupperman Ltd. has $750,000 of total overhead costs. It currently uses a traditional costing system where overhead costs are allocated using machine hours. The budgeted machine hours for the year are 250,000. It is considering adopting an ABC system and has identified three activities: Setups ($350,000), Quality Assurance ($250,000) and Materials Handling ($150,000). The company had budgeted 1,250 setups, 3,125 inspection hours, and 600,000 parts. One of its jobs used 35 setups, 60 inspection hours, 700 parts and 3500 machine hours. The overhead cost allocated to the job using the traditional costing system would be:

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Answer #1

Predetermined Overhead rate = Total estimated overhead/Total estimated machine hours

= 750,000/250,000 = 3 per machine hour.

Overhead allocated to Job = 3500 mh*3 per mh

= 10,500

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