Question

Prescott makes handheld calculators in two models basic and professional Prescott estimated 5721.000 of manufacturing overhead and 515.000 machine hours for the year. The basic model actually consumed 230.000 machine hours, and the professional model consumed 285.000 machine hours. The predetermined overhead allocatione using machine hours as the allocation base is $100 per machine hour with the allocated overhead costs split between the basic model and the professional model by 5322.000 and $3.000, respectively Click the icon to view the data using multiple department allocation) Cide the con to view additional data) Read the recents Requirement 1. Prescott pects to produce 220.000 bas models and 220 000 professional models Compute the predetermined overhead allocation rates using activity based costing How much overhead is located to the basic model to the professional model? Begin by electing the formula to calculate the predetermined overhead (OH) alocation rate. Then enter the amounts to compute the location rate for each ach Abbreviation oed Oy * quantity Enter the material handing location to four decimal places and the remaining location rates to the nearest cent) Material Handling Machines insertion of Pats How much overhead is located to the basic model to the professional model? Choose from any or enter number in the Colds and then continue to the question

Answer 1

Solution:

11 Requirement 1 Calculation of Predetermined overhead rate using Activity Based Costing Estimated overhead Activity * Estimated Cost Driver costs Materials handling $99,000 Machine Setup $1,27,000 Insertion of Parts $4,95,000 90 . 90 = Predetermined OH allocation Rate $1,100 $2,268 $5,500 + 56

Formula to allocate overhead (OH) costs Predetermined OH allocation rate Estimated Cost Driver Allocated Mfg. Overhead Cost Manufacturing overhead - Materials Handling Manufacturing overhead - Machine Setup Manufacturing overhead - Insertion of Parts Total manufacturing overhead cost Basic Model $38,500 $45,357 $1,92,500 $2,76,357 Professional Model $60,500 $81,643 $3,02,500 $4,44,643

Requirement 2 Basic Model Total MOH Per Unit $3,22,000 $1.46 $4,10,800 $1.87 $2,76,357 $1.26 Single plantwide allocation rate Multiple department allocation rates Activity based allocation rates Professional Model Total MOH Per Unit $3,99,000 $1.82 $3,10,200 $1.41 $4,44,643 $2.02 Conclusion The allocation using activity-based costing is the most accurate because it considers the resources used by each model. Management can now see that compared to the cost allocated using the single plantwide rate, the Basic model cost less than expected and the Professional model cost more than expected to produce.