Solution 1:
Determination of activity rate for each activity & allocation of overhead and overhead cost per unit | ||||
Activity | Estimated Overhead Cost | Activity Base | Usage of Activity Base | Activity Rate |
Materials handling | $52,500.00 | Nos of requisitions | 3600 | $14.58 |
Equipment Setup | $41,250.00 | Nos of Setups | 2400 | $17.19 |
Inspections | $40,500.00 | Nos of inspections | 2250 | $18.00 |
Total | $134,250.00 |
Solution 2:
Determination of activity rate for each activity & allocation of overhead and overhead cost per unit | ||||||||
Activity | Estimated Overhead Cost | Activity Base | Usage of Activity Base | Activity Rate | Standard | Ultra | ||
Usage | Allocated Costs | Usage | Allocated Costs | |||||
Materials handling | $52,500.00 | Nos of requisitions | 3600 | $14.58 | 1500 | $21,875.00 | 2100 | $30,625.00 |
Equipment Setup | $41,250.00 | Nos of Setups | 2400 | $17.19 | 900 | $15,468.75 | 1500 | $25,781.25 |
Inspections | $40,500.00 | Nos of inspections | 2250 | $18.00 | 750 | $13,500.00 | 1500 | $27,000.00 |
Total | $134,250.00 | $50,843.75 | $83,406.25 |
Solution 3:
Predetermined overhea rate = Total overhead cost / Nos of machine hours = $134,250 / 1200 = $111.875 per machine hour
Overhead cost assigned to standard shoes = 800 * $111.875 = $89,500
Overhead cost assigned to Ultra shoes = 400 * $111.875 = $44,750
Solution 4:
Under ABC overhead cost assigned to standard shoes is lower than overhead cost assigned to Ultra shoes. While under traditional costing overhead cost assigned to standard shoes is higher than overhead cost assigned to Ultra shoes. Under traditional costing overhead cost is assigned to product on single plantwide overhead rate. However under activity based costing overhead costing assigned to different product on the basis of efforts involved in different activities by each product. Therefore assignement overhead cost under ABC represent fair and accurate assignement of overhead cost than overhead cost assignment under traditional costing.
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