Question

ABC Inc. produces a single product and manufactured 20,000 units last

year. The company budgeted the following overhead costs for the year:
Indirect Factory Wages:$100,000Factory Utilities:$ 40,000Factory Depreciation:$ 60,000

Direct manufacturing costs per unit are $50. The company uses an activity-based costing system which compiles costs into 3 cost pools, machining, milling and assembly. The costs allocated to these activity cost pools break down as follows:

Usage:
Cost:MachiningMillingAssemblyIndirect Factory Wages:50%30%20%Factory Utilities:40%40%20%Factory Depreciation:10%90%0%

The following cost drivers are used for each of the following activity cost pools:

-Machining: Machine Hours
-Milling: Milling Hours
-Assembly: Direct Labour Hours
Practical capacity for each of the cost pools are shown below:

-Machining: 18,000 Machine Hours.
-Milling: 40,000 Milling Hours.
-Assembly: 12,500 Direct Labour Hours
Actual Usage was as follows:

-Machining: 40,000 Machine Hours.
-Milling: 40,000 Milling Hours.
-Assembly: 15,000 Direct Labour Hours.
The budgeted overhead rate to be charged for the Milling activity was:

Answer 1

Answer : $2.50

working

	Total	Machining	Milling	Assembly
Indirect Factory Wages	$        100,000	50%	$      50,000	30%	$         30,000	20%	$       20,000
Factory utilities	$          40,000	40%	$      16,000	40%	$         16,000	20%	$         8,000
factroy depreciation	$          60,000	10%	$         6,000	90%	$         54,000	0%	$                -
Total	$        200,000		$      72,000		$       100,000		$       28,000
Practical capacity			18,000		40,000		12,500
Budgeted OH rate			$           4.00		$              2.50		$            2.24