St. James, Inc., currently uses traditional costing procedures, applying $800,00
ID: 2340558 • Letter: S
Question
St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.
The overhead cost allocated to Beta by using activity-based costing procedures would be:
Pool 1 Pool 2 Pool 3
Beta 1200 45 2250
Zeta 2800 55 750
Pool Cost $160,000 $280,000 $360,000
Explanation / Answer
Answer
Working
Pool 1
Pool 2
Pool 3
TOTAL
A
Pool Cost
$ 160,000.00
$ 280,000.00
$ 360,000.00
$ 800,000.00
No. of Drivers:
1
For Beta
1,200
45
2,250
2
For Zeta
2,800
55
750
B = 1+2
Total Drivers
4,000
100
3,000
C = A/B
Cost per driver
$ 40.00
$ 2,800.00
$ 120.00
D = C x 1
Overhead cost allocated to Beta
$ 48,000.00
$ 126,000.00
$ 270,000.00
$ 444,000.00 = ANSWER
Working
Pool 1
Pool 2
Pool 3
TOTAL
A
Pool Cost
$ 160,000.00
$ 280,000.00
$ 360,000.00
$ 800,000.00
No. of Drivers:
1
For Beta
1,200
45
2,250
2
For Zeta
2,800
55
750
B = 1+2
Total Drivers
4,000
100
3,000
C = A/B
Cost per driver
$ 40.00
$ 2,800.00
$ 120.00
D = C x 1
Overhead cost allocated to Beta
$ 48,000.00
$ 126,000.00
$ 270,000.00
$ 444,000.00 = ANSWER
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