Spin Cycle Company uses three activity pools to apply overhead to its products.

Question

Spin Cycle Company uses three activity pools to apply overhead to its products. Each activity has a cost driver used to allocate the overhead costs to the product. The activities and related overhead costs are as follows: product design $42,100; machining $324,100; and material handling $124,000. The cost drivers and expected use are as follows.

(a) Compute the predetermined overhead rate for each activity. (Round overhead rate per machine hours to 2 decimal places, e.g. $2.25 and all other answers to 0 decimal places, e.g. $1,225.)

(b) Classify each of these activities as unit-level, batch-level, product-level, or facility-level.

Activities Cost Drivers Expected Use of Cost
Drivers per Activity Product design Number of product changes 10 Machining Machine hours 172,000 Material handling Number of setups 110 Spin Cycle Company uses three activity pools to apply overhead to its products. Each activity has a cost driver used to allocate the overhead costs to the product. The activities and related overhead costs are as follows: product design $42,100; machining $324,100; and material handling $124,000. The cost drivers and expected use are as follows.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Product Design Predetermined Overhead Rate = Total Overhead Costs Allocated to Product Design/Number of Product Changes = 42100/10 = 4210 per product change

Machining Predetermined Overhead Rate = Total Overhead Costs Allocated to Machining/Machine Hours = 324100/172000 = 1.88 per machine hour

Machining Predetermined Overhead Rate = Total Overhead Costs Allocated to Material Handling/Number of Setups = 124000/110 = 1127 per setup.

Part B:

Activities Level Product design Product Machining Unit Material handling Batch

Thanks.

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