Question

Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information. Car Truck Estimated wheels produced 40,000 9,000 Direct labor hours per wheel 1 3 Total estimated overhead costs for the two product lines are $777,200.

Calculate overhead rate. (Round answer to 2 decimal places, e.g. 12.25.) Overhead rate $enter a dollar amount per direct labor hour rounded to 2 decimal places per direct labor hour

Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. Car wheels $enter a dollar amount Truck wheels $enter a dollar amount

Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Activity Cost Pools Estimated Use of Cost Drivers Estimated Overhead Costs Setting up machines 1,000 setups $268,000 Assembling 67,000 labor hours 268,000 Inspection 1,200 inspections 241,200 Compute the activity-based overhead rates for these three cost pools. Overhead Rates Setting up machines $enter a dollar amount Assembling $enter a dollar amount Inspection $enter a dollar amount

Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information. Estimated Use of Cost Drivers per Product Car Truck Number of setups 200 800 Direct labor hours 40,000 27,000 Number of inspections 100 1,100 Car Wheels Truck Wheels Setting up machines $enter a dollar amount $enter a dollar amount Assembling $enter a dollar amount $enter a dollar amount Inspection $enter a dollar amount $enter a dollar amount Total cost assigned $enter a total amount $enter a total amount

Answer 1

Estimated Direct labor hour = ( 40000*1+9000*3) = 67000 Hour

Calculate overhead rate. (Round answer to 2 decimal places, e.g. 12.25.) Overhead rate 777200/67000 $11.60 per direct labor hour

Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. Car wheels 40000*11.60 = 464000 Truck wheels 27000*11.60 = 313200

Compute the activity-based overhead rates for these three cost pools.

		Overhead Rates
Setting up machines		$268000/1000 = 268 per setup
Assembling		4 per labor hour
Inspection		201 per inspection

Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information.

Estimated Use of Cost Drivers per Product
		Car		Truck
Number of setups		200		800
Direct labor hours		40,000		27,000
Number of inspections		100		1,100

		Car Wheels		Truck Wheels
Setting up machines		200*268 = 53600		214400
Assembling		40000*4 = 160000		108000
Inspection		20100		221100
Total cost assigned		233700		543500