Activity Based Costing The controller for Alabama Cooking Oil Co. established th

Question

Activity Based Costing

The controller for Alabama Cooking Oil Co. established the following overhead cost pools and cost drivers:

Overhead Cost Pool

Budgeted Overhead

Cost Driver

Estimated Cost Driver Level

Machine setups

$186,000

# of setups

120 setups

Material handling

124,800

# of barrels

7,800 barrels

Quality control

316,200

# of inspections

1,020 inspections

Other overhead cost

172,500

# of machine hrs

11,500 machine hrs

An order of 800 barrels of cooking oil used:

# of setups

14

# of barrels

800

# of inspections

22

# of machine hours

1,100

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 intermediate calculation to the nearest cent and final answer to the nearest whole dollar.)

(b) Using volume-based costing, how much overhead is assigned to the order based on machine hours as a single cost driver?

(c) Using ABC costing, how much total overhead is assigned to the order?

(show work)

Overhead Cost Pool

Budgeted Overhead

Cost Driver

Estimated Cost Driver Level

Machine setups

$186,000

# of setups

120 setups

Material handling

124,800

# of barrels

7,800 barrels

Quality control

316,200

# of inspections

1,020 inspections

Other overhead cost

172,500

# of machine hrs

11,500 machine hrs

Explanation / Answer

a) Overhead rate per machine hour = Total overhead / Machine hours = $799,500 / 11,500 = $69.52 per machine hour.

b) Based on the machine hours, overhead assigned to the order = Machine hours x Overhead rate = 1,100 x $69.52 = $76,472

c)

So, overhead as per ABC = $1,550 x 14 setups + $16 x 800 barrels + $310 x 22 inspections + $15 x 1,100 machine hours = $57,820.00

Calculations A B C = A / B Overhead Cost Pool Budgeted Overhead Cost Driver Estimated Cost Driver Level Overhead per cost driver Machine setups $186,000 # of setups 120 setups $1,550 Material handling 124,800 # of barrels 7,800 barrels 16.00 Quality control 316,200 # of inspections 1,020 inspections 310 Other overhead cost 172,500 # of machine hrs 11,500 machine hrs 15 Total overhead $799,500

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