Exercise 18-4 two products: car wheels and truck wheels. To determine the amount
ID: 2338194 • Letter: E
Question
Exercise 18-4 two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, Altex Inc. manufactures the controller, Robert Hermann, has developed the following information. Car Truck Estimated wheels produced Direct labor hours per wheel 38,000 14,000 Total estimated overhead costs for the two product lines are $855,000. Calculate overhead rate. (Round answer to 2 declmal places, e.g. 12.25 Overhead rate per direct labor hour Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. (Round answers to 0 decimal places, e.g. 1,575.) Car wheels s Truck wheels Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Expected Use of Estimated Overhead Activity Cost Pools Setting up machines Assembling Inspection Cost DriversCosts 1,000 setups $221,000 349,000 285,000 80,000 labor hours 1,200 inspections Compute the activity-based overhead rates for these three cost pools. (Round answers to 2 decimal places, e.g. 12.25.) Overhead Rates Setting up machines s Assembling Inspection Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information. (Round answers to O decimal places, e.g. 1,575.) Expected Use of Cost Drivers per Product Car Truck 800 38,000 42,000 1,100 200 Number of setups Direct labor hours Number of inspections 100 Car Wheels Truck Wheels Setting up machines s Assembling Inspection Total cost assigned s Question Attempts: UnlimitedExplanation / Answer
Part A
Calculation of Overhead rate taking Labor hour as basis for allocation
Total Estimated overheads
$ 855,000.00
Total labor hours (38000x1)+(14000x3)
80000
Overhead rate per labor hour
$ 10.69
Answer Overhead rate $10.69 per Direct labor hour
Allocation of Overheads
Car wheel
Truck wheel
Total
Labor hours
38000
42000
80000
Overhead rate per labor hour
$ 10.69
$ 10.69
$ 10.69
Overheads Allocated
$ 406125
$ 448875
$ 855000
Part B
Allocation as per ABC System
Overhead rates
Activity
Cost Drivers
Total Activity Amount (A)
Level of Activity (B)
Activity Rate (C=A/B)
Setting up machines
Number of Setups
$ 221,000.00
1000.00
$ 221.00
Per setup
Assembling
Number of labor hours
$ 349,000.00
80000.00
$ 4.36
Per Labor hour
Inspection
Number of Inspections
$ 285,000.00
1200.00
$ 237.50
Per Inspection
$ 855,000.00
Car Wheels
Activity rate(A)
Activity Driver Incurred (B)
Overhead Assigned (C=A*B)
Setting up machines
$ 221.00
200
$ 44,200.00
Assembling
$ 4.36
38000
$ 165,775.00
Inspection
$ 237.50
100
$ 23,750.00
Total Overheads
$ 233,725.00
Production
38000.00
Overhead cost per unit
$ 6.15
Truck wheels
Activity rate(A)
Activity Driver Incurred (B)
Overhead Assigned (C=A*B)
Setting up machines
$ 221.00
800
$ 176,800.00
Assembling
$ 4.36
42000
$ 183,225.00
Inspection
$ 237.50
1100
$ 261,250.00
Total Overheads
$ 621,275.00
Production
14000.00
Overhead cost per unit
$ 44.38
Answer
Car Wheels
Truck Wheels
Setting up Machines
$ 44,200.00
$ 176,800.00
Assembling
$ 165,775.00
$ 183,225.00
Inspection
$ 23,750.00
$ 261,250.00
Total Cost assigned
$ 233,725.00
$ 621,275.00
Total Estimated overheads
$ 855,000.00
Total labor hours (38000x1)+(14000x3)
80000
Overhead rate per labor hour
$ 10.69
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