Question

Fischer Company identified the following activities, costs, and activity drivers:

Activity	Expected Costs	Expected Activity
Handling parts	$525,000	25,000 parts in stock
Inspecting product	$390,000	940 batches
Processing purchase orders	$220,000	440 orders
Designing packaging	$230,000	5 models

a. What is total overhead cost for Job 102 using a plantwide overhead rate assuming the company assigns overhead based on 60,000 budgeted direct labor hours (Round to two decimals)?

b. What is the total overhead cost for JOB 102 using Activity Based costing given the following statistics?    

JOB 101 JOB 102

Handling parts	100 parts	200
Inspecting product	10 batches	5
Processing purchase orders	2 orders	5
Designing packaging	1 design	2

Direct Labor Hours 500 DL hours    800 DL hours

Answer 1

Answer a)

Calculation of total overhead cost allocated to Job 102 on the basis of Single Plant wide overhead rate based on Direct Labour hours

Total overhead cost allocated to Job 102 = (Budgeted direct labour hours of Job 102) X (Overhead rate per direct labour hour)

                                                        = 800 direct labour hours X $ 22.75 per direct labour hour

                                                        = $ 18,200                                  

Therefore overhead cost allocated to Job 102 based on single predetermined overhead rate based on direct labour hours is $ 18,200.

Working Notes:

Calculation of Total Budgeted overhead cost:

Cost Pools	Budgeted Overheads costs
Handling Parts	$ 525,000
Inspecting Product	$ 390,000
Processing Purchase orders	$ 220,000
Designing Packaging	$ 230,000
Total	$ 1,365,000

Therefore total budgeted overhead cost is $ 1,365,000.

Calculation of Single Plant wide overhead rate based on direct labour hours:

Single Plant wide overhead rate = Total Budgeted overheads/Total Budgeted direct labour hours

                                                           = $ 1,365,000/60,000 direct labour hours

                                                           = $ 22.75 per direct labour hour

Therefore single plant wide rate is $ 22.75 per direct labour hour

Answer b)

Calculation of total overhead cost allocated to Job 102 based on Activity Based Costing

Cost Pools	Activity Drivers	Overhead cost per Activity	Actual Activity Consumed	Allocated overhead cost
Handling Parts	Number of Parts in Stock	$ 21.00 per part	200 parts	$ 4,200
Inspecting Product	Number of batches	$ 414.89 per batch	5 batches	$ 2,074.47
Processing Purchase orders	Number of purchase orders processed	$ 500 per purchase order processed	5 purchase orders processed	$ 2,500
Designing Packaging	Number of Models	$ 46,000 per model	2 models	$ 92,000
Total Overhead Cost Assigned to Job 102				$ 100,774.47

Therefore overhead cost allocated to Job 102 based Activity based costing is $ 100,774.47.

Working Notes:

Calculation of Activity rate for each activity:

Cost Pools	Overheads costs	Activity Drivers	Total Number of Activities	Overhead cost per Activity
Handling Parts	$ 525,000	Number of Parts in Stock	25,000 Parts in stock	$ 21.00 per part
Inspecting Product	$ 390,000	Number of batches	940 batches	$ 414.89 per batch
Processing Purchase orders	$ 220,000	Number of purchase orders processed	440 orders	$ 500 per order processed
Designing Packaging	$ 230,000	Number of Models	5 models	$ 46,000 per model
Total	$ 1,365,000

Calculation of overhead cost assigned t Job 102 of each activity:

Handling Parts:

Allocated overhead cost = Number of parts in stock X overhead rate per part

                                             = 200 parts X $ 21.00 per part

                                             = $ 4,200

Therefore overhead cost of handling parts allocated to Job 102 is $ 4,200

Inspecting Product:

Allocated overhead cost = Number of batches X overhead rate per batch

                                             = 5 batches X $ 414.89 per batch

                                             = $ 2,074.47

Therefore overhead cost of inspecting product allocated to Job 102 is $ 2,074.47

Processing Purchase orders:

Allocated overhead cost = Number of purchase orders processed X overhead rate per purchase order processed

                                             = 5 Orders processed X $ 500 per purchase order processed

                                             = $ 2,500

Therefore overhead cost of processing of purchase orders to Job 102 is $ 2,500

Designing Packaging:

Allocated overhead cost = Number of Models X overhead rate per Model

                                             = 2 Models X $ 46,000 per model

                                             = $ 92,000

Therefore overhead cost of designing packaging to Job 102 is $ 92,000