Question

4. Green Toys, a toy manufacturing company, is trying to allocate its indirect costs between two of its products, Mobi Cycle and Toddler Stack. The company has provided the following information regarding the activity cost pools and cost drivers. Activity Cost pool Advertising costs Designing and development costs Maintenance costs Assembly costs Total Activity Mobi Toddler Cost Cycle Stack Total $ 250,000 90 160 250 Advertisements 300,000 300 100 400 Designs 50,000 100 100 200 batches 150,000 5,000 10,000 15,000 units 750,000

Answer 1

A.The activity rate for designing and development costs is Total estimated costs divided by total cost driver which is designs here.

So, activity rate for designing and development costs =

$300,000 ÷ 400 designs = $750 per design

B.The activity rate for maintenance costs is total maintenance costs divided by cost driver which is batches here. So, the activity rate is ($50,000 ÷ 200batches) = $250 per batch. Since 100 batches of Toddler Stack were produced, maintenance costs allocated to Toddler Stack is $25,000 (100batches × $250 per batch)

C.The amount of estimated overhead allocated to Mobi Cycle is

Advertising costs $250,000 ×90 ÷ 250 $90,000

Designing and $300,000 ×300 ÷ 400 $225,000

development costs

Maintenance costs $50,000 ×100 ÷ 200 $25,000

Assembly costs $150,000 ×5,000 ÷ 15,000 $50,000

Total overhead costs $390,000