Question

Balco Inc. uses ABC costing to determine product costs for reporting. At the start of the year,
management made the following cost and activity estimates for the company's 4 activity costs pools.

Activity/Cost Pool	Activity Measure	Estimated Overhead Cost	Expected Activity
Labour Related	DLH	$184,925	28,460 DLH
Purchase Orders	# of orders	$52,700	625 Orders
Widget Assembly	# of widgets	$495,000	11,100 widgets
General Factory	Machine Hours	$1,148,000	82,500 MH

Required: Compute the Activity Rate (pre-determined OH Rate) for all of the activity/cost pools.

During the year, actual overhead cost and activity were recorded as follows:

Activity/Cost Pool	Acutal Overhead Cost	Actual Activity
Labour Related	$187,575	28,120 DLH
Purchase Orders	$51,950	629 Orders
Widget Assembly	$497,500	11,210 widgets
General Factory	$1,082,000	80,180 MH

Required: Determine the OH applied to production during the year and show whether it is
over or under applied for each individual activity and an overall total.

Answer 1

The Activity rate (pre-determined OH Rate)
Activity/Cost Pool	Activity Measure	Estimated Overhead Cost (1)	Expected Activity (2)	Activity rate (1)/(2)
Labour Related	DLH	184,925	28,460	6.50	per DLH
Purchase Orders	# of orders	52,700	625	84.32	per Order
Widget Assembly	# of widgets	495,000	11,100	44.59	per widget
General Factory	Machine Hours	1,148,000	82,500	13.92	per MH
Overhead applied to production during the year
Activity/Cost Pool	Actual activity (1)	Activity rate (2)	Applied Oveahead (1)x(2)	Actual Overhead Cost	Under-applied or Overapplied
Labour Related	28,120	6.50	182,780	187,575	(4,795)	Under-applied
Purchase Orders	629	84.32	53,037	51,950	1,087	Over-applied
Widget Assembly	11,210	44.59	499,854	497,500	2,354	Over-applied
General Factory	80,180	13.92	1,116,106	1,082,000	34,106	Over-applied