Question

Make sure to scroll left and right to see full question and please show work. Waterway makes two products, Simple and Complex. As their names suggest, Simple is the more basic product, and Complex comes with all the bells and whistles. The company has always allocated overhead costs to products based on machine hours. Last year, the company implemented an activity-based costing system, and managers determined the following activity pools and rates based on total overhead of $1,592,000:

		Rate
Assembly		$1.25 per direct labor hour
Fabrication		$9.75 per machine hour
Setups		$18 per batch
Bonding		$262,400 direct to Complex

Only the Complex product requires bonding, so all the costs of bonding should be allocated to Complex. The following data relate to both products.

		Simple		Complex
Units produced		127,000		48,000
Direct labor hours		226,000		110,000
Machine hours		50,000		30,000
Batches		2,200		5,000

Using the traditional method of allocating overhead costs,

•	allocate overhead cost to the products.
•	show that the overhead assigned to each product sums to the total company overhead.
•	determine the overhead cost per unit for each product.

(Round overhead rate and overhead per unit answers to 2 decimal places, e.g. 15.25.)

		Simple		Complex		Total
Machine hours		Enter a number of hours		Enter a number of hours
Overhead rate		$Enter a dollar amount rounded to 2 decimal places		$Enter a dollar amount rounded to 2 decimal places
Total overhead to product		$Enter a total amount		$Enter a total amount		$Enter a total amount

		Simple		Complex
Total overhead to product		$Enter a dollar amount		$Enter a dollar amount
Number of units produced		Enter a number of units		Enter a number of units
Overhead per unit		$Enter a dollar amount per unit rounded to 2 decimal places		$Enter a dollar amount per unit rounded to 2 decimal places

  

  

Using the activity-based costing rates,

•	allocate overhead cost to the products.
•	show that the overhead assigned to each product sums to the total company overhead.
•	determine the overhead cost per unit for each product.

(Round per unit answers to 2 decimal places, e.g. 15.25)

		Simple		Complex		Total
Assembly		$Enter a dollar amount		$Enter a dollar amount
Fabrication		Enter a dollar amount		Enter a dollar amount
Setups		Enter a dollar amount		Enter a dollar amount
Bonding		Enter a dollar amount		Enter a dollar amount
Total overhead		$Enter a total amount		$Enter a total amount		$Enter a total amount

		Simple		Complex
Total overhead to product		$Enter a dollar amount		$Enter a dollar amount
Number of units produced		Enter a number of units		Enter a number of units
Overhead per unit		$Enter a dollar amount per unit rounded to 2 decimal places		$Enter a dollar amount per unit rounded to 2 decimal places

Answer 1

Using the traditional method of allocating overhead costs,

•	allocate overhead cost to the products.
•	show that the overhead assigned to each product sums to the total company overhead.
•	determine the overhead cost per unit for each product.

(Round overhead rate and overhead per unit answers to 2 decimal places, e.g. 15.25.)

Overhead rate = 1592000/80000 = 19.90

		Simple		Complex		Total
Machine hours		50000		30000
Overhead rate		19.9		19.9
Total overhead to product		995000		597000		1592000

		Simple		Complex
Total overhead to product		995000		597000
Number of units produced		127000		48000
Overhead per unit		7.83		12.44

Using the activity-based costing rates,

•	allocate overhead cost to the products.
•	show that the overhead assigned to each product sums to the total company overhead.
•	determine the overhead cost per unit for each product.

(Round per unit answers to 2 decimal places, e.g. 15.25)

		Simple		Complex		Total
Assembly		226000*1.25 = 282500		110000*1.25 = 137500
Fabrication		50000*9.75 = 487500		292500
Setups		18*2200 = 39600		18*5000 = 90000
Bonding				262400
Total overhead		809600		782400		159200

		Simple		Complex
Total overhead to product		809600		782400
Number of units produced		127000		48000
Overhead per unit		6.37		16.30