Fox Hunting Gear manufactures two products: camouflage jackets and camouflage ha
ID: 2460278 • Letter: F
Question
Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats. The company makes 50,000 jackets and 20,000 hats each year. Information for overhead costs and for the two products appears below.
Activity
Driver
Estimated Total
Overhead Cost
Jackets
Hats
# of setups
$ 150,000
750 setups
1,500 setups
# of parts
300,000
60,000 parts
40,000 parts
# of machine hours
600,000
12,000 machine hrs.
6,000 machine hrs.
# of inspections
550,000
15,000 inspections
47,000 inspections
# of shipments
300,000
10,000 shipments
10,000 shipments
$1,900,000
Assume that activity-based costing is used. What is the rate per setup that should be used to assign setup cost to hats or jackets? Round answer to 2 decimal places.
Activity
Driver
Estimated Total
Overhead Cost
Jackets
Hats
Explanation / Answer
In activity Costing, we identify fixed overhead to the product on the basis of the activity involved instead of a single recovery rate. Activity Total Cost Basis Ratio Jackets Hats Setups $ 150,000.00 No. of Setup 750 : 1500 $ 50,000 $ 100,000 Ordering Parts $ 300,000.00 No. of Parts 60,000 : 40,000 $ 180,000 $ 120,000 Machining $ 600,000.00 No. of Hours 12,000 : 6,000 $ 400,000 $ 200,000 Inspections $ 550,000.00 No. of Inspections 15,000 : 47,000 $ 133,065 $ 416,935 Shipping $ 300,000.00 No. of Shipping 10, 000 : 10,000 $ 150,000 $ 150,000 Total $ 1,900,000.00 $ 913,065 $ 986,935 * Total allocated overhead to Jackets = $ 913,064.52 Jackets Manufactures during the year = 50,000 Overhead Cost Per Jacket = $ 18.26 * Total allocated overhead to Hats = $ 986,935.48 Hats Manufactures during the year = 20,000 Overhead Cost Per Hats = $ 49.35
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