K Company estimates that overhead costs for the next year will be $2,967,000 for indirect labor...

K Company estimates that overhead costs for the next year will be $2,967,000 for indirect labor and $860,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 86,000 direct labor hours are planned for this next year, how much overhead would be assigned to a product requiring 6 direct labor hours?

Multiple Choice

$44.50
$34.50
$267.00
$207.00
None of the choices

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools:

			Budgeted Activity
Activity Cost Pool	Budgeted Cost		Product A1		Product B2
Activity 1	$	64,000		2,800		6,400
Activity 2	$	79,000		3,840		6,360
Activity 3	$	112,000		8,800		2,400

Annual production and sales level of Product A1 is 10,080 units, and the annual production and sales level of Product B2 is 23,910 units. What is the approximate overhead cost per unit of Product A1 under activity-based costing?

Multiple Choice

$6.96
$7.75
$10.00
$13.61
$4.93

Expert Solution

Ans. 1	Option 3rd $267.00

	*Calculations for Total estimated overhead cost :

	Indirect labor	$2,967,000
	Factory utilities	$860,000
	Total estimated overhead cost	$3,827,000

	*Calculation for Predetermined overhead rate :

	Predetermined overhead rate = Budgeted overhead cost / Budgeted Direct labor hours
	$3,827,000 / 86,000
	$44.50 per direct labor hour

	*Calculations for Overhead assigned :

	Overhead assigned = Actual direct labor hours * Predetermined overhead rate
	6 * $44.50
	$267.00

Ans. 2	Option 4th $13.61

	*Calculation of Total activity :

	Activity cost pools	Product A 1 (a)	Product B 2 (b)	Total activity (a+b)
	Activity 1	2800	6400	9200
	Activity 2	3840	6360	10200
	Activity 3	8800	2400	11200

	*Calculation of Activity rate :

	Activity cost pools	Budgeted Cost (a)	Total activity (b)	Activity rate (a/b)
	Activity 1	$64,000	9200	$6.96
	Activity 2	$79,000	10200	$7.75
	Activity 3	$112,000	11200	$10.00

	*Calculations of overhead cost allocated to Product A 1 :

	Activity cost pool	Activity of Product A 1 (a)	Activity rate (b)	*Total cost (ab)**
	Activity 1	2800	$6.96	$19,478
	Activity 2	3840	$7.75	$29,741
	Activity 3	8800	$10.00	$88,000
	Overhead cost allocated			$137,219

	*Calculations for overhead cost per unit :

	Overhead cost allocated (a)	$137,219
	Annual production (b)	10080
	Overhead cost per unit (a/b)	$13.61

ekkarill92 answered 2 years ago

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