Question

1) Plantwide Overhead Rate

2) Departmental Overhead Rate

3) Activity Based Costing

Example 1 (Plantwide Overhead Rate): A business needs to allocate factory overhead to a product. The direct material cost of the product is $200 and the direct labor cost is $150. The business applies factory overhead based on direct labor costs. Assume the business estimated factory overhead cost to be $350,000 and direct labor costs to be $250,000 for the year. The business can sell the product for $800.

Example 2 (Activity Based Costing):   A corporation reports the following (the estimated overhead costs/quantity relate to all products the company produces)

Activity                       Overhead Cost            Driver                          Total Quantity

Mixing                        $50,000                       Direct Labor hours      4,000 hours

Cooking                      $30,000                       Machine Hours           2,500 hours

Packaging                   $25,000                       Boxes                          50,000 boxes

The business produced 30,000 boxes of cookies. Additional information related to the 30,000 boxes:

Direct Material                       $20,000

Direct Labor                           22,500

Mixing            2,000 hours

Cooking          1,250 hours

Packaging       30,000 boxes

Answer 1