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		$9.00	per direct labor-hour
Machine processing		$3.00	per machine-hour
Machine setups		$40.00	per setup
Production orders		$150.00	per order
Shipments		$115.00	per shipment
Product sustaining		$900.00	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	1,150	60
Machine-hours	3,200	50
Machine setups	19	3
Production orders	19	3
Shipments	38	3
Product sustaining	3	3

  

Required:

Determine the total overhead cost that would be assigned to each of the products listed above in the activity-based costing system.

Answer 1

• All working forms part of the answer
• Overhead cost allocated to K425

			K425
Activity Cost Pool	Activity Rates		No. of drivers	Overhead cost allocated
Supporting direct labor	$                       9.00	per direct labor-hour	1150	$          10,350.00
Machine processing	$                       3.00	per machine-hour	3200	$             9,600.00
Machine setups	$                    40.00	per setup	19	$                760.00
Production orders	$                  150.00	per order	19	$             2,850.00
Shipments	$                  115.00	per shipment	38	$             4,370.00
Product sustaining	$                  900.00	per product	3	$             2,700.00
Total Overhead cost Allocated				$          30,630.00

• Overhead cost allocated to M67

			M67
Activity Cost Pool	Activity Rates		No. of drivers	Overhead cost allocated
Supporting direct labor	$                                 9.00	per direct labor-hour	60	$               540.00
Machine processing	$                                 3.00	per machine-hour	50	$               150.00
Machine setups	$                              40.00	per setup	3	$               120.00
Production orders	$                            150.00	per order	3	$               450.00
Shipments	$                            115.00	per shipment	3	$               345.00
Product sustaining	$                            900.00	per product	3	$           2,700.00
Total Overhead cost Allocated				$           4,305.00