5. The controller for Alabama Cooking Oil Co. established the following overhead

Question

5. The controller for Alabama Cooking Oil Co. established the following overhead cost pools and cost drivers: Budgeted Estimated Cost Pool Overhead Cost Driver Cost Driver Level Machine setups $300,000 # of setups 230 setups Material handling 248,600 # of barrels 15,600 barrels Quality control 585,800 # of inspections 2,080 inspections Other overhead 445,800 # of machine hours 22,600 machine hours An order of 1,800 barrels of cooking oil used: Machine setups 30 setups Material handling 1,890 barrels Quality inspections 334 inspections Machine hours 2,112 machine hours Required: (a) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? (Round your answer to 2 decimal places.) (b) Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver? (c) Utilizing ABC, how much total overhead is assigned to the order?

Explanation / Answer

(a) Overhead rate = Total estimated overheads/Total machine hours = $1580200/22600 = $69.92

(b) Overheads assigned = Machine hours used x Overhead rate = 2112 x $69.92 = $147671.04

(c) Overheads assigned: $204991.28

Note: Intermediate calculations and answers rounded off to 2 decimal places.

Cost Pool Overhead Cost $ Cost Driver Level Overhead Rate $ Cost Driver Usage Allocated Overhead $ Machine setups 300000 230 1304.35 30 39130.50 Material handling 248600 15600 15.94 1890 30126.60 Quality control 585800 2080 281.63 334 94064.42 Other overhead 445800 22600 19.73 2112 41669.76 Total $ 1580200 204991.28

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