Question

Medical Tape makes two products: Generic and Label. It estimates it will produce 359,259 units of Generic and 603,571 of Label, and the overhead for each of its cost pools is as follows:

Cost Pool	Estimated Overhead
Material Receipts	$130,500
Machine Setups	200,000
Assembly	585,000
Inspection	330,000
Total	$1,245,500

It has also estimated the activities for each cost driver as follows:

Driver	Generic	Label
Inspections	450	650
Requisitions	500	950
Parts	250	400
Setups	200	300

How much is the overhead allocated to each unit of Generic and Label? Do not round intermediate computations and round your answers to two decimal places.

	Generic	Label
Cost per unit	$	$

Answer 1

Solution

	Generic	Label
Overhead cost per unit	$ 1.35	$                    1.26

.

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Material receipts	Number of Requisition	$ 130,500	1450	$             90.00	Per Requisition
Machine setup	Number of setup	$ 200,000	500	$          400.00	Per setup
Assembly	Number of part	$ 585,000	650	$          900.00	Per part
Inspection	Number of inspection	$ 330,000	1100	$          300.00	Per inspection

.

Cost assigned to Generic
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material receipts	$           90.00	500.00	$ 45,000.00
Machine setup	$        400.00	200.00	$ 80,000.00
Assembly	$        900.00	250.00	$ 225000.00
Inspection	$        300.00	450.00	$ 135000.00
Total Overheads assigned	$ 485000.00
Production	359,259.00
Overhead cost per unit	$ 1.35

.

Cost assigned to Label
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material receipts	$           90.00	950	$ 85,500
Machine setup	$        400.00	300	$ 120,000
Assembly	$        900.00	400	$ 360,000
Inspection	$        300.00	650	$ 195,000
Total Overheads assigned	$           760,500.00
Production	603,571.00
Overhead cost per unit	$                 1.26