Altex Inc. manufactures two products: car wheels and truck wheels. To determine

Question

Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information. Total estimated overhead costs for the two product lines arc $770,000. Compute the overhead cost assigned to the car w heels and truck wheels, assuming that direct labor hours is used to allocate overhead costs Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to lire truck wheels product line because of us complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

Explanation / Answer

Answer 1 Car Truck total over head 770000 40000 10000 1 3 Over head allocation on the basis of labour hours Hours of labour 40000 30000 Total Hours 70000 Overheads 440000 330000 answer 2 expected use of cost derivers car truck setting up machine 1000 set ups 220000 (total cost/total no of setup)*no of inspection to car (total cost/total no of setup)*no of inspection to truck assembling 70000 280000 160000 120000 inspection 1200 inspection 270000 (total cost of inspection/total no of inspection)*no of inspection to car (total cost of inspection/total no of inspection)*no of inspection to truck Total 770000 Actually in this question no of setup assigned to car and truck is not given as same no of inspection are not assigned to truck and car so allocation of these two overheads is not possible due to non availbility of information

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