Question

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	9	per direct labor-hour
Machine processing	$	4	per machine-hour
Machine setups	$	45	per setup
Production orders	$	160	per order
Shipments	$	115	per shipment
Product sustaining	$	800	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	1,125	60
Machine-hours	3,400	50
Machine setups	15	2
Production orders	15	2
Shipments	30	2
Product sustaining	2	2

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Answer 1

Solution : 1
	Calculation of the ovehead cost assigned to K425
	Activity	Activity Used	"X " By	Cost Driver rate	Total Ovehead Cost
	Driect Labor Hours	1,125	"X " By	$                        9	$                   10,125
	Machine Hours	3,400	"X " By	$                        4	$                   13,600
	Machine Set-Ups	15	"X " By	$                     45	$                         675
	Producing Orders	15	"X " By	$                   160	$                     2,400
	Shipments	30	"X " By	$                   115	$                     3,450
	Producing Sustaining	2	"X " By	$                   800	$                     1,600
		Total Overhead Cost			$                   31,850
Solution : 2
	Calculation of the ovehead cost assigned to M67
	Activity	Activity Used	"X " By	Cost Driver rate	Total Ovehead Cost
	Driect Labor Hours	60	"X " By	$                        9	$                         540
	Machine Hours	50	"X " By	$                        4	$                         200
	Machine Set-Ups	2	"X " By	$                     45	$                           90
	Producing Orders	2	"X " By	$                   160	$                         320
	Shipments	2	"X " By	$                   115	$                         230
	Producing Sustaining	2	"X " By	$                   800	$                     1,600
		Total Overhead Cost			$                     2,980