Question

T 3303 2008 Name erm 1 The controller for Alabama Cooking Oil Co, established the following overhead cost pools and cost drivers: Budgeted Estimated Overhead Cost Pool Overhead Cost Driver Cost Driver Level Machine setups $143.000 #of setups 110 setups Material handling 124,800 # of barrels 7,800 barrels Quality control 316,200 # of inspections 1.020 inspections Other overhead cost 172,500 # of machine hrs 11,500 machine hrs An order of 800 barrels of cooking oil used: Machine setups 10 setups Material handling 780 barrels Quality inspections 104 inspections Machine hours 980 machine hours Required: (a) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? (Round your answer to 2 decimal places.) (b) Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver? (c) Utilizing ABC, how much total overhead is assigned to the order?

Answer 1

(a) Overhead rate = $756500/11500 = $65.78 per machine hour

Activity	Cost
Machine Setups	$             143,000
Material Handling	$             124,800
Quality Control	$             316,200
Other overhead cost	$             172,500
Total	$             756,500

(b) Overhead assigned to Job = 980 x $65.78 = $64464.40

(c)

Activity	Cost	Cost Driver		Cost per Cost driver
Machine Setups	$             143,000	110	# of setups	$       1,300	per setup
Material Handling	$             124,800	7800	# of barrels	$             16	per barrel
Quality Control	$             316,200	1020	# of inspections	$           310	per inspection
Other overhead cost	$             172,500	11500	# of machine hours	$             15	per machine hour
Total	$             756,500
Overhead allocated
Machine Setups	$               13,000	=10*1300
Material Handling	$               12,480	=780*16
Quality Control	$               32,240	=104*310
Other overhead cost	$               14,700	=980*15
Total	$               72,420