Question

Vintage Fun reproduces old - fashioned style roller skates and skateboards. The annual production and sales of roller skates is 1,000 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 1.5 direct labor hours per unit, while skateboards require 2.25 direct labor hours per unit. The total estimated overhead for the period is $114,700. The company is looking at the possibility of changing to an activity – based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: Expected activity Total Estimated overhead cost $6,350 $16,800 $91,550 Activity cost pool Setup costs Engineering costs Maintenance costs Roller skates 335 490 2,575 575 Skateboards 240 660 2,228 1,150 4.803 The overhead cost per skateboard using an activity-based costing system would be closest to (Round all answers to two decimal places.) O A. $31.29 O B. $54.76 O c. $44.71 OD. $64.85

Answer 1

Overhead rate=Respective cost/Respective activity

Overhead rate for :

Setup costs=6350/575=$11.0434783(Approx)

Engineering costs=16800/1150=$14.6086957(Approx)

Maintenance costs=91550/4803=$19.0610035(Approx)

Hence overhead allocated for skateboard =(11.0434783*240)+(14.6086957*660)+(19.0610035*2228)

=$54760.0898

Hence overhead cost per skateboard=54760.0898/1750

=$31.29(Approx)