The controller for Wolfe Machining has established the following overhead cost p

Question

The controller for Wolfe Machining has established the following overhead cost pools and cost drivers:
  

Order no. 715 has the following production requirements:
Machine setups: 5             Raw material: 10,700 units
Inspections: 19                  Machine hours: 790

a.[10 points] Compute the total overhead that should be assigned to order no. 715 by using activity-based costing.

b. [10 points] Suppose that Wolfe were to use a single, predetermined overhead rate based on machine hours. Compute the rate per hour and the total overhead assigned to order no. 715.
.

Overhead cost Pool Budgeted overhead cost cost driver Machine setups $240,000 number of setups Material Handling 90,000 Units of raw material Quality control inspection 48,000 Number of inspection Other overhead costs 160,000 machine hours total $538,000

Explanation / Answer

Compute the total overhead that should be assigned to order no. 715 by using activity-based costing

Suppose that Wolfe were to use a single, predetermined overhead rate based on machine hours. Compute the rate per hour and the total overhead assigned to order no. 715

Predetermine overhead rate = Total overhead/Total machine hour

                                               = 538000/20000

Predetermine overhead rate = 26.9 per machine hour

Overhead assigned to order no. 715 (26.9*790) = 21251

Total overhead Machine setups (1200*5) 6000 Material Handling (10700*1.5) 16050 Quality control inspection (19*40) 760 Other overhead costs (8*790) 6320 Total overhead cost 29130

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