Question

Concord makes two products, Simple and Complex. As their names suggest, Simple is the more basic product, and Complex comes with all the bells and whistles. The company has always allocated overhead costs to products based on machine hours. Last year, the company implemented an activity-based costing system, and managers determined the following activity pools and rates based on total overhead of $1,495,200:

		Rate
Assembly		$1.25 per direct labor hour
Fabrication		$9.75 per machine hour
Setups		$18 per batch
Bonding		$118,550 direct to Complex

Only the Complex product requires bonding, so all the costs of bonding should be allocated to Complex. The following data relate to both products.

		Simple		Complex
Units produced		127,000		42,000
Direct labor hours		240,000		101,000
Machine hours		51,000		33,000
Batches		2,700		4,600

Using the traditional method of allocating overhead costs,

•	allocate overhead cost to the products.
•	show that the overhead assigned to each product sums to the total company overhead.
•	determine the overhead cost per unit for each product.

(Round overhead rate and overhead per unit answers to 2 decimal places, e.g. 15.25.)

		Simple		Complex		Total
Machine hours		Enter a number of hours		Enter a number of hours
Overhead rate		$Enter a dollar amount rounded to 2 decimal places		$Enter a dollar amount rounded to 2 decimal places
Total overhead to product		$Enter a total amount		$Enter a total amount		$Enter a total amount

		Simple		Complex
Total overhead to product		$Enter a dollar amount		$Enter a dollar amount
Number of units produced		Enter a number of units		Enter a number of units
Overhead per unit		$Enter a dollar amount per unit rounded to 2 decimal places		$Enter a dollar amount per unit rounded to 2 decimal places

  

  

Using the activity-based costing rates,

•	allocate overhead cost to the products.
•	show that the overhead assigned to each product sums to the total company overhead.
•	determine the overhead cost per unit for each product.

(Round per unit answers to 2 decimal places, e.g. 15.25)

		Simple		Complex		Total
Assembly		$Enter a dollar amount		$Enter a dollar amount
Fabrication		Enter a dollar amount		Enter a dollar amount
Setups		Enter a dollar amount		Enter a dollar amount
Bonding		Enter a dollar amount		Enter a dollar amount
Total overhead		$Enter a total amount		$Enter a total amount		$Enter a total amount

		Simple		Complex
Total overhead to product		$Enter a dollar amount		$Enter a dollar amount
Number of units produced		Enter a number of units		Enter a number of units
Overhead per unit		$Enter a dollar amount per unit rounded to 2 decimal places		$Enter a dollar amount per unit rounded to 2 decimal places

Answer 1

Overhead Rate= total Overhead/ total Machine Hour

=1495200/(51000+33000)= $17.80 per Machine Hour

statement showing allocation of Overhead cost to the product- Coronodo - Traditional Costing
	Simple		Complex	total
overhead rate (a)	17.8		17.8
Machine hours (b)	51,000		33,000	84,000
Total Overhead to prduct (c=aXb)	907,800		587,400	1,495,200
Statement showing overhead assigned to each product- As per Traditional
	Simple		Complex
Total Overhead to prduct(a)	$907,800.00		$587,400.00
Number of Unit Produced (b)	127000		42000
Overhead per Unit	$7.15		$13.99

Allocation of Overehad- As per ABC
		Simple	Complex
ABC system	Overhead Rate	No. of Driver (d)	Allocated OH (cXd)	No. of Driver ( e)	Allocated OH (c X e)
Assembly	$1.25	240000	$300,000.00	101000	$126,250.00
Fabrication	$9.75	51000	$497,250.00	33000	$321,750.00
Setup	$18.00	2700	$48,600.00	4600	$82,800.00
Bonding	$118,550.00				$118,550.00
			$845,850.00		$649,350.00
Statement showing overhead assigned to each product- As per ABC
	Simple		Complex
Total Overhead to prduct(a)	$845,850.00		$649,350.00
Number of Unit Produced (b)	127000		42000
Overhead per Unit	$6.66		$15.46