Isadore’s Implements, Inc., manufactures pens and mechanical pencils often used

Question

Isadore’s Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data: Cost Driver Volume Activity Cost Driver Cost Pencils Pens Setting up

Number of setups $ 95,000 23 27

Inspecting Number of parts 25,600 3 5

Packing and shipping Number of boxes shipped 50,000 40,000 85,000

Total overhead $ 170,600 Required:

a. Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.)

Explanation / Answer

Activity overhead Total activity overhead per activity Pencil pen Number of setups 95000 23+27=50 95000/50=1900 23*1900=43700 27*1900=51300 Inspecting Number of parts 25600 3+5=8 25600/8=3200 3*3200=9600 5*3200=16000 Packing and shipping Number of boxes shipped 50000 40000+85000=125000 50000/125000=$.40 per box 40000*.4= 16000 85000*.4= 34000 Total overhead assigned 69300 101300

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