Problem 3. (12 points) Hayward Industries s manufactures dining chairs and table

Question

Problem 3. (12 points) Hayward Industries s manufactures dining chairs and tables. The following information is available Dinino haisCoo Machine setups Inspections Labor hours 200 250 2,600 600 470 2,400 $48,000 72.000 $120,000 Hayward is considering switching from one overhead rate based on labor hours to activity-based costing Perform the following analyses for these two components of overhead a. Compute the overhead rate per labor hour using a single overhead rate and total overhead costs assigned to each product. (Traditional method) Using activity-based costing, compute activity rates for machine setup costs and inspection cos and total overhead assigned to each product.

Explanation / Answer

Ans.a Single Overhead Rate: Overhead Rate = Total cost / Total labor hours 120000 / (2600 + 2400) 24 Total Overhead cost     =   labor hours * single overhead rate Dining Chairs 2600 * 24 62400 Tables 2400 * 24 57600 Total Overhead 120000 Ans.b Activity-based costing: Activity rate per machine setups    =    Total cost / Total machine setups 48000 / (200 + 600) 60 Activity rate per inspection             =     Total Cost / Total Inspections 72000 / (250 + 470) 100 Total Overhead   =   (Machine setups * Activity rate per setup) + (Inspections * Activity rate per inspection) Dining Chairs (200 * 60) + (250 * 100) 37000 Tables (600 * 60) + (470 * 100) 83000 Total Overhead 120000

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