Question

The controller for Tulsa Medical Supply Company has established the following activity cost pools and cost drivers.

Activity Cost Pool	Budgeted Overhead Cost			Cost Driver		Budgeted Level for Cost Driver		Pool Rate
Machine setups	$	440,000		Number of setups		110			$	4,000	per setup
Material handling		105,000		Weight of raw material		35,000	lb.		$	3	per pound
Hazardous waste control		60,000		Weight of hazardous chemicals used		6,000	lb.		$	10	per pound
Quality control		225,000		Number of inspections		3,000			$	75	per inspection
Other overhead costs		500,000		Machine hours		25,000			$	20	per machine hour
Total	$	1,330,000

An order for 5,000 boxes of medical-testing agent has the following production requirements.

Machine setups	7	setups
Raw material	10,000	pounds
Hazardous materials	4,000	pounds
Inspections	10	inspections
Machine hours	500	machine hours

Required:
1. Compute the total overhead that should be assigned to the medical-testing agent order.
2. What is the overhead cost per box of testing agent?
3. Suppose Tulsa Medical Supply Company were to use a single predetermined overhead rate based on machine hours. Compute the rate per hour.
4. Under the approach in requirement 3, how much overhead would be assigned to the medical-testing agent order?
a. In total.
b. Per box of testing agent.

Complete this question by entering your answers in the tabs below.

• Req 1 and 2
• Req 3
• Req 4

Compute the total overhead that should be assigned to the medical-testing agent order. What is the overhead cost per box of testing agent? (Round "Overhead cost" to 2 decimal places.)

	Total overhead Overhead cost    per box

Suppose Tulsa Medical Supply Company were to use a single predetermined overhead rate based on machine hours. Compute the rate per hour. (Round your answer to 2 decimal places.)

	Overhead rate per machine hr.

Under the approach in requirement 3, how much overhead would be assigned to the medical-testing agent order?

a. In total.

b. Per box of testing agent. (Round your answer to 2 decimal places.)

	a. Total overhead b. Overhead cost    per box

Answer 1

Requirement 1

Particulars	Pool Rate	Cost Driver for Special Order of Testing Equipment	Total Overheads for Special Order of Testing Equipment
	A	B	C=A*B
Machine Setups	4,000	7	28,000
Materials Handling	3	10,000	30,000
Waste Hazardous Control	10	4,000	40,000
Quality Control	75	10	750
Other Overhead Cost	20	500	10,000
Total Overhead Allocated to Special Order of Testing Equipment			108,750

Question 2

Overhead Cost per Box using Activity Based Costing

Particulars	Amount
Total Overhead Cost Allocated	108,750
÷ Number of Boxes	5,000
Overhead Cost per Box of Testing Equipment	21.75

Question 3

Predetermined Overhead Rate = Total Estimated Manufacturing Overhead / Total Estimated Machine Hours

Total Estimated Manufacturing Overhead = $ 13,30,000

Total Machine Hours = 25,000 Machine Hours

Predetermined Overhead Rate = 13,30,000 / 25,000

Predetermined Overhead Rate = $ 53.2 per Machine Hour

Question 4

Particulars	Amount
Predetermined Overhead Rate	53.20
* Machine Hours for Special Order of Testing Equipment	500
Total Manufacturing Overheads for Special Order of Testing Equipment	26,600
÷ Number of Boxes in Special Order of Testing Equipment	5,000
Manufacturing Overhead per Box of Special Order of Testing Equipment	5.32