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An activity based costing system is being considered at Evelia, nv to assign products overhead costs;...

An activity based costing system is being considered at Evelia, nv to assign products overhead costs; these overhead costs are currently assigned strictly by number of units produced. First, the two overhead costs of Rent expense and Insurance expense would be allocated to three activity cost pools - Finishing, Sanding, and Other - based on resource consumption. The information used to perform these allocations is below:

Overhead Costs:

  • Rent expense: $2,000,000
  • Insurance expense: $1,650,000

Distribution of Resource Consumption across Activity Cost Pools:

Overhead Cost Activity Cost Pools
Finishing Sanding Other
Rent expense 0.45 0.25 0.30
Insurance expense 0.20 0.35 0.45

In the second stage, Finishing costs would be assigned to products using direct labor hours and Sanding costs would be assigned to products using the number of machine hours. The costs in the Other activity pool would not be assigned to products. Activity data for the company's two products is as follows:

direct labor hours machine hours Units Produced
Product XR-2: 15,000 10,500 6,400
Product XR-1: 19,000 29,500 2,200
Total: 34,000 40,000 8,600

PART A:

How much overhead cost would be assigned to the Sanding activity cost pool under activity based costing in the first stage of allocation?

A.$1,077,500 (I believe this is correct?)

B. $830,000

C. $330,000

D. $977,500

E. $1,230,000

PART B:

The activity rate for the Sanding activity cost pool under activity based costing would be closest to:

A. $26.94 ( I think this is correct?)

B. $42.43

C. $9.71

D. $24.44

E. $14.44

PART C:

To the nearest dollar, how would the overhead cost assigned to Product XR-1 change under activity based costing compared to their current accounting methods?

There would be an (INCREASE/DECREASE?) in assigned overhead under activity based costing, and the amount of the change would be $_________?

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Expert Solution

ekkarill92 answered 2 years ago
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