Question

Julio produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Julio has identified two cost pools: materials handling and setup. The collected data follow:

	Standard Model		Deluxe Model
Number of machine hours	26,400		31,400
Number of material moves	620		920
Number of setups	70		570

Total estimated overhead costs are $358,840, of which $169,400 is assigned to the material handling cost pool and $189,440 is assigned to the setup cost pool.

1. Calculate the overhead assigned to each product using the traditional cost system. (Round the overhead rate to four decimal places.)

	Overhead Assigned
Standard model
Delux model

2. Calculate the overhead assigned to each product using ABC. (Round the overhead rate to four decimal places.)

	Overhead Assigned
Standard Model
Delux Model

Answer 1

		Particulars	Standard	Deluxe	Total
		No of Machine Hours	26400	31400	57800
		No of Material Moves	620	920	1540
		No of Setups	70	570	640
		Total OH	358840
		Material Handling	169400
		Setup Cost	189440
	1	Overhead rate Using Traditional Cost System:
		Total OH	358840
		Total Machine Hours	57800
		Recovery Rate Per MH	6.21
		Particulars
		Standard	1,63,899	(26400*6.21)
		Deluxe	1,94,941	(31400*6.21)
	2	Cost Pools	Cost Pool OH	Cost Driver	Cost Driver Value	Cost per Driver
		Material Handling	169400	No of Material Moves	1540	110.00
		Setup Cost	189440	No of Setups	640	296.00
		Particulars	Material Handling	Setup Cost	Total Cost
		Standard	68,200	20720	88,920
		Deluxe	1,01,200	168720	2,69,920
			1,69,400	189440	3,58,840
			(Total Driver * Cost Per Driver)	(Total Driver * Cost Per Driver)