Schell Company manufactures automobile floor mats. It currently has two product

Question

Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Schell has a total of $26,240 in overhead. It currently uses a traditional cost system with overhead applied to the product on the basis of either labor hours or machine hours. Schell has compiled the following information about possible cost drivers and its two product lines: Quantity/Amount Consumed by Standard Floor Mat Line 650 labor hours 2,930 machine hours Quantity/Amount Consumed by Deluxe Floor Mat Line 410 labor hours 4,140 machine hours Schell Company Total 1,060 labor hours 7,070 machine hours Required: 1. Suppose Schell uses a traditional costing system with direct labor hours as the cost driver. Determine the amount of overhead assigned to each product line. (Round activity rates to 4 decimal places and final answers to 2 decimal places.) Overhead Assigned Standard Floor Mat Deluxe Floor Mat 2. Suppose Schell uses a raditional costing system with machine hours as he cost driver. De er mine decimal places and final answers to 2 decimal places.) e an ou o o ead as ned each duct line. Round a rat s Overhead Assigned Standard Floor Mat Deluxe Floor Mat

Explanation / Answer

1) Labour Hours as Cost Driver:

Overhead Assigned to Standard Floor Mat Line

= Total Overhead * (labour hours consumed by standard floor mat line / Total labour hours)

    = 26240 * (650/1060)

    = $ 16090.57

   Overhead Assigned to Deluxe Floor Mat Line

= Total Overhead * (labour hours consumed by Deluxe floor mat line / Total labour hours)

    = 26240 * (410/1060)

    = $ 10149.43     

2) Machine Hours as Cost Driver:

Overhead Assigned to Standard Floor Mat Line

= Total Overhead * (Machine hours consumed by standard floor mat line / Total machine hours)

    = 26240 * (2930/7070)

    = $ 10874.57

   Overhead Assigned to Deluxe Floor Mat Line

= Total Overhead * (Machine hours consumed by Deluxe floor mat line / Total machine hours)

    = 26240 * (4140/7070)

    = $ 15365.43

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