Question

Everlast Co. manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $576,000 payroll for 7,200 direct labor-hours. Listed below is cost driver information used in the product-costing system:

Overhead Cost Pool	Budgeted Overhead			Cost Driver		Estimated Cost Driver Level
Machine setups	$	240,000		# of setups		240	setups
Materials handling		111,600		# of barrels		9,300	barrels
Quality control		828,000		# of inspections		2,300	inspections
Other overhead cost		648,000		# of machine hours		18,000	machine hours
Total overhead	$	1,827,600

A current product order has the following requirements:

Machine setups	21	setups
Materials handling	678	barrels
Quality inspections	86	inspections
Machine hours	1,350	machine hours
Direct labor hour	480	hours

Using ABC, how much total overhead is assigned to the order?

Answer 1

Overhead cost pool	Budgeted overhead (A)	Estimated cost driver level (B)	Overhead rate (A/B)
Machine setups	240000	240	1000	per setup
Materials handling	111600	9300	12	per barrels
Quality control	828000	2300	360	per inspection
Other overhead cost	648000	18000	36	per machine hour

Overhead allocation :	Current product Order
Machine setups [ 1000*21 ]	21000
Materials handling [ 12*678 ]	8136
Quality control [ 360*86 ]	30960
Other overhead cost [ 36*1350 ]	48600
Total overhead assigned	108696