Question

AutoSave OB R File Home Insert U Page Layout E xcelTemplateAssignment_Ch04 (5) - Excel Search Formulas Data Review View HelpDYMO Label QuickBooks G X V 04-4 - Assign overhead using traditional costing and ABC A B C D E F 1 E4-4 - Assign overhead using traditional costing and ABC 2 Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to 3 assign to each product line, the controller, Robert Hermann, has developed the following information. Car 40.000 Estimated wheels produced Direct labor hours per wheel Truck 10,000 9 Total estimated overhead costs for the two product lines are $770,000. 10 11 Instructions 12 (a) Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours 13 is used to allocate overhead costs. 14. (b) Hermann is not satisfied with the traditional method of allocating overhead because he believes that most 15 of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops 16 the following three activity cost pools and related cost drivers to better understand these costs. Expected Use of Estimated Overhead Activity Cost Pools Cost Drivers Costs Setting up machines 1,000 setups $220,000 Assembling 70,000 labor hours 280,000 Inspection 1,200 inspections pocoons 270,000 24 Compute the activity-based overhead rates for these three cost pools 25 (c) Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based 26 costing system, given the following Information. 29 30 Expected Use of Cost Drivers per Product Car Number of setups 200 Direct labor hours 40,000 Number of Inspections 31 32 Truck 800 30,000 1.100 33 400 34 (d) What do you believe Hermann should do? 35 54-1 4-4 E4-9 PA-1A | P4-2 FM

Answer 1

(A) Direct labour hour toe colo wheels. Difect labor has for buche wheels. (2001 Total 40000 (40000x)) 3000 0 C10000x3) 7oooo lotal estimated overhead Total DL has One thead nate $750,000 70000 $11 Overhead assigned . D2 by Overhead late a Carwheels 40000 . Truck wheels. 10000 21 Total 440000 1 10000. Selping up machines a $220000 – $220 Assembling - 28000 2 7oooo Inspection - $270000 $225. 120

a Car whees. sekingup_. Assembling Inspection 200 40000 100 X 220 x y & $225 $44000 = $160000 a $22500 $226500 wheels. Tricle Setting up Asembling Inspection. 800 x 220 a 30000 x y liw 225 = $176000 $120000 $ 200 $543500