Question

Everlast Co. manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $444,000 payroll for 5,000 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Machine setups Materials handling Quality control Other overhead cost Total overhead Budgeted Overhead $ 171,250 105,000 300,000 175,000 $ 751, 250 Cost Driver # of setups # of barrels # of inspections # of machine hours Estimated Cost Driver Level 125 setups 8,750 barrels 1,200 inspections 12,500 machine hours A current product order has the following requirements: Machine setups Materials handling Quality inspections Machine hours Direct labor hour 10 setups 612 barrels 81 inspections 800 machine hours 348 hours

Answer 1

Budgeted overheads for machine setups = $171,250

Estimated number of setups = 125

Activity rate for machine setups = Budgeted overheads for machine setups/Estimated number of setups

= 171,250/125

= $1,370 per machine setup

Number of setups required in the order = 10

Machine setup overhead cost assigned to the order = Number of setups required in the order x Activity rate for machine setups

= 1,370 x 10

= $13,700

First option is correct.

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