Question

5. TW Corporation manufactures Iron and Driver golf clubs. TW's total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Assembly Inspections Iron 500 mach. hours 350 2,500 labor hours Driver 500 mach. hours 150 1,500 labor hours Total Cost $60,000 $100,000 TW is considering switching from one overhead rate based on labor hours to activity-based costing. 0) Overhead rate using 0-1) a single overhead rate 0-2) activity-based costing 1) Total overhead costs assigned to Iron clubs, using a single overhead rate, are 2) Using activity-based costing, how much assembly cost is assigned to Iron clubs? 3) Using activity-based costing, how much inspections cost is assigned to Iron clubs?

Answer 1

1a) Single overhead rate = Estimated overhead/Estimated labor hour = 160000/4000 = 40 per labor hour

1b) Activity based costing

Assembly = 60000/1000 = 60 per machine hour

Inspection = 100000/500 = 200 per inspection

2) Total overhead assigned to iron clubs = 40*2500 = 100000

3) Assembly cost assigned to iron clubs = 60*500 = 30000

4) Inspection cost assigned to iron clubs = 200*350 = 70000