Question

Alonzo Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, YuYu Ortega, has developed the following information:

		Car		Truck
Estimated wheels produced		43,000		20,000
Direct labour hours per wheel		2		4

Total estimated overhead costs for the two product lines are $ 830,000.

A) Calculate the overhead cost assigned to the car wheels and truck wheels, assuming that direct labour hours are used to allocate overhead costs.

Car wheels		$ enter a dollar amount
Truck wheels		$ enter a dollar amount
Total overhead		$ enter a total amount

B) YuYu is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheel product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs:

Activity Cost Pools		Estimated Use of Cost Drivers			Estimated Overhead Costs
Setting up machines		800	set-ups		$ 408,000
Assembling		37,000	labour hours		370,000
Inspection		104	inspections		52,000

Calculate the activity-based overhead rates for these three cost pools.

Cost Pool		Rate
Setting up machines		$ enter a dollar amount	per set-up
Assembling		$ enter a dollar amount	per labour hr
Inspection		$ enter a dollar amount	per inspection

Answer 1

A

	WORKING	ANS
TOTAL LABOUR HRS	(43,000*2)+(20,000*4)	=166,000
CAR WHEELS	(830,000/166,000)*(43,000*2)	=430,000
TRUCK WHEELS	(830,000/166,000)*(20,000*4)	=400,000
TOTAL OVERHEAD	(430,000+400,000)	=830,000

B

	ANS		WORKING
COST POOL	RATE
SETTING UP MACHINES	510	PER SET-UP	40,800/800
ASSEMBLING	10	PER LABOUR HR	370,000/37,000
INSPECTION	500	PER INSPECTION	52,000/104