Question

The controller for Tulsa Medical Supply Company has established the following activity cost pools and cost drivers.

Activity Cost Pool	Budgeted Overhead Cost			Cost Driver	Budgeted Level for Cost Driver		Pool Rate
Machine setups	$	250,000		Number of setups	125			$	2,000	per setup
Material handling		75,000		Weight of raw material	37,500	lb.		$	2	per pound
Hazardous waste control		25,000		Weight of hazardous chemicals used	5,000	lb.		$	5	per pound
Quality control		75,000		Number of inspections	1,000			$	75	per inspection
Other overhead costs		200,000		Machine hours	20,000			$	10	per machine hour
Total	$	625,000

An order for 1,000 boxes of medical-testing agent has the following production requirements.

Machine setups	5	setups
Raw material	10,000	pounds
Hazardous materials	2,000	pounds
Inspections	10	inspections
Machine hours	500	machine hours

Required:

1. Compute the total overhead that should be assigned to the medical-testing agent order.

2. What is the overhead cost per box of testing agent?

3. Suppose Tulsa Medical Supply Company were to use a single predetermined overhead rate based on machine hours. Compute the rate per hour.

4. Under the approach in requirement (3), how much overhead would be assigned to the medical-testing agent order?

    a. In total.

    b. Per box of testing agent.

Answer 1

(1): Total overhead that should be assigned to the medical testing agent order:

= (5*2,000) + (10,000*2) + (2,000*5) +(10*75) + (500*10)

= $45,750

(2): Overhead cost per box of testing agent = $45,750/1,000 boxes

= $45.75

(3): Predetermined overhead rate based on machine hours = $625,000/20,000 hours

= $31.25 per hour

(4): (a): Total = $31.25 per hour * 500 machine hours

= $15,625

(b): Per box = $15,625/1000 boxes

= $156.25 per box