Problem 4 (30 pts) The Manoli Manufacturing Overhead costs Machining Material Ha

Question

Problem 4 (30 pts) The Manoli Manufacturing Overhead costs Machining Material Handling 70,000 Set Up Inspection Total mpany has collected the following data for use in calculating product costs: S150,000 80,000 0,000 S350 Activity Data: Total 50,00tleaners S000eepers 00,000 Units Produced me Costs irect Labor Hours Machine Hours 950,000 0,000 0,000 100 00,000 0,000 750,000 0,000 10,000 ,800 10 ion Hours ,200 140 Number of Moves 50 If a single rate is used based on direct labor hours how much manufacturing overhead is applied to Rug Cleaners and to Sweepers? 1) 2) If an Activity Based Costing system with drivers of Machine Hours for Machining, Moves for Material Handling, Set Ups for Set Up costs and Inspection Hours for Inspection is used, how much overhead is applied to Rug Cleaners and to Sweepers? Sweepers 42 ,000 21@k eos 18 3) Comment on the difference between the results fromt the single rate system and the ABC system

Explanation / Answer

1. Manufacturing Overhead recovery rate = Total Manufacturing Overheads / Total direct labour hours

= 350000 / 50000

= $7 per direct labour hour.

Manufacturing Overhead applicable to Rug Cleaners = $7 * 30000 hours

= $210,000

Manufacturing Overhead applicable to Sweepers = $7 * 20000 hours

= $140,000

2. Machining overhead recovery rate = Total Machining Overhead / Total Machine Hours

= 150000 / 30000

= $5 per machine hour

Material handling overhead recovery rate = Total Material Handling Overhead / Total Number of Moves

= 70000 / 350

= $200 per move

Setup overhead recovery rate = Setup Overhead / Total Number of Setups

= 80000 / 100

= $800 per setup

Inspection overhead recovery rate = Inspection Overhead / Total Inspection Hours

= 50000 / 4000

= $12.5 per inspection hour

Manufacturing Overhead applicable to Rug Cleaners = 5*20000 + 200*140 + 800*25 + 12.5*1200

= $163,000

Manufacturing Overhead applicable to Sweepers = 5*10000 + 200*210 + 800*75 + 12.5*2800

= $187,000

3. Under single rate system, the manufacturing overhead applicable to Rug Cleaners is more than that to Sweepers, while under ABC system, the manufacturing overhead applicable Sweepers is more than that to Rug Cleaners. It is because of the reason that different type of overheads depend on certain activities which might be more for one product in one case and vice versa.

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