Question

20,000 assign to each product line, the two products: car wheals and truck wheels. To determine theamr controller, Robert Hermann, has developed the follown Estimated wheels produced Direct labor hours per wheel Car 40,000 Truck 10,000 3 Total estimate d overhead costs for the two product lines are $770,000. Instructions (a) Compute the overhead cost assigned to the car wheels and truck wheels, a assuming that direct labor hours he believes that most is used to allocate overhead costs. (b) Hermann is not satisfied with the traditional method of allocating overhead beca of the overhead costs relate to the truck whe the following three activity cost pools and related cost drivers to better unders els product line because of its complexity. He therefore develops Expected Use of Cost Drivers 1,000 setups 70,000 labor hours 1,200 inspections Estimated Overhead Activity Cost Pools Setting up machines Assembling Inspection Costs $220,000 280,000 270,000 Compute the activity-based overhead rates for these three cost pools. Compute the cost that is assigned to the car wheels and truck wheels product lines using an a costing system, given the following information. (c) Expected Use of Cost Drivers per Product Car Truck Number of setups Direct labor hours Number of inspections 200 40,000 100 800 30,000 1,100 (d) What do you believe Hermann should dot? NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a

Answer 1

Answer:

(a)

Direct labor hour for Car wheels(40,000*1)	40,000
Direct labor hour for truck wheels (10,000*3)	30,000
Total Direct labor Hour	70,000
Total Estimated Overhead	770,000
Total Direct labor Hour	70,000
Over head rate /DLH	11

Overhead assigned to	Car wheels	Truck Wheels
Direct labor hour	40,000	30,000
Over head rate /DLH	11	11
Total Over head assigned	440000	330000

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(b)

	estimated OH	Expected uses of cost driver	ABC OH rate
	A	B	C=A/B
setting up of machines	220,000	1000	220
assembling	280,000	70,000	4
Inspection	270,000	1200	225

________________________________________________________

(c)

Car wheels
Activity cost pool	Expected uses of cost driver	ABC OH rate	Cost assigned
	A	B	C=A*B
setting up of machines	200	220	44000
assembling	40,000	4	160000
Inspection	100	225	22500
Total Cost assigned			226500

truck wheels
Activity cost pool	Expected uses of cost driver	ABC OH rate	Cost assigned
	A	B	C=A*B
setting up of machines	800	220	176000
assembling	30,000	4	120000
Inspection	1,100	225	247500
			543500