Question

Exercise 17-4 Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the information controller, Robert Hermann, has developed the following Car Truck Estimated wheels produced Direct labor hours per wheel 35,500 15,000 Total estimated overhead costs for the two product lines are $825,000 Calculate overhead rate. (Round answer to 2 decimal places, e-g. 12.25.) Overhead rate per direct labor hour Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. (Round answers to O decimal places, e.g. 1,57s.) Car wheels Truck wheels Hermann is not satisfied with the tradtional method of allocating overhead because he belleves that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools gnd related cost drivers to better understand these couts Expected Use of Cost Drivers Estimated Overhead Activity Cost Pools Setting up machines Assembling Inspection $213,000 33,000 279,000 1,000 setups 80,500 labor hours 1,200 inspections

Answer 1

Units Produced	35500	15000
Hours per unit	1	3
Total Hours	35500	45000
Total Hrs =80,500 Hrs.
Total Overhead= $825,000
Overhead Rate per Hour =$ 825000/80500 = $10.25 per direct labour hour
	Car	Wheel
Total Hrs.	35500	45000
Hourly Rate	$10.25	$10.25
Allocated Overhead	$363,820	$461,180
Activity	No. of Activity	Overhead Cost	Cost Per Activity
Setting up machines	1000	$213,000.00	$213.00
Assembling	80500	$333,000.00	$4.14
Inspection	1200	$279,000.00	$232.50
Activity	Car	Truck	Rate	Total $ Car	Total $ Truck
Setting up machines	200	800	$213.00	$42,600.00	$170,400.00
Assembling	35500	45000	$4.14	$146,850.93	$186,149.07
Inspection	100	1100	$232.50	$23,250.00	$255,750.00
				$212,701	$612,299