Grass Inc. identified the following overhead activities, their respective costs,
ID: 2429533 • Letter: G
Question
Grass Inc. identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of lawn mowerss
Type of Mowers
Activity (Cost)
Cost Driver
Deluxe
Moderate
Economy
Machine maintenance ($545,600)
Number of machine hours
220
780
1,200
Setups ($416,000)
Number of setups
29
13
6
Quality control ($203,322)
Number of inspections
15
34
45
Rent ($408,100)
Number of square feet
420
180
110
The company produced the following number of lawn mowers during the prior year.
Deluxe
Moderate
Economy
500
1,440
1,970
1. Grass Inc. currently allocates all overhead costs based on machine hours. Determine the overhead cost per mower for the deluxe type. (choose the closest number).
2. Determine the overhead cost for one unit of economy mower, assuming that Grass Inc. uses an activity-based costing system. (choose the closest number)
Type of Mowers
Activity (Cost)
Cost Driver
Deluxe
Moderate
Economy
Machine maintenance ($545,600)
Number of machine hours
220
780
1,200
Setups ($416,000)
Number of setups
29
13
6
Quality control ($203,322)
Number of inspections
15
34
45
Rent ($408,100)
Number of square feet
420
180
110
Explanation / Answer
Type of Mowers Activity (Cost) Activity Costs Cost Driver Deluxe Moderate Economy Total Cost Driver Machine maintenance ($545,600) 545600 Number of machine hours 220 780 1,200 2200 Setups ($416,000) 416000 Number of setups 29 13 6 48 Quality control ($203,322) 203322 Number of inspections 15 34 45 94 Rent ($408,100) 408100 Number of square feet 420 180 110 710 1573022 1 Total Overheads 1573022 A Total Machine Hours 2200 B Overhead Per MH 715.01 A/B Allocation of Overhead to Deluxe: Machine Hours 220 A Overhead Per MH 715 B Total Allocation 157302 A*B Total Units of Deluxe 500 Overhead Per Unit 315 2 Activity Based System: A B A/B Activity (Cost) Activity Costs Cost Driver Deluxe Moderate Economy Total Cost Driver Cost Per Driver Machine maintenance ($545,600) 545600 Number of machine hours 220 780 1,200 2200 248 Setups ($416,000) 416000 Number of setups 29 13 6 48 8,667 Quality control ($203,322) 203322 Number of inspections 15 34 45 94 2,163 Rent ($408,100) 408100 Number of square feet 420 180 110 710 575 1573022 Economy Economy Allocation of Overhead to Deluxe: Cost Drivers Cost Per Driver Overhead Costs Machine maintenane 1,200 248 297600 Setups 6 8,667 52000 Quality control 45 2,163 97335 Rent 110 575 63227 Total 510162 Total Units of Economy 1970 Overhead Per Unit 258.97
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