Question

Tristar Manufacturing produces two types of battery-operated toy soldiers: infantry and special forces. The soldiers are produced by using one continuous process. Four activities have been identified: machining, setups, receiving, and packing. Resource drivers have been used to assign costs to each activity. The overhead activities, their costs, and the other related data are as follows: Product Machine Hours Setups Receiving Orders Packing Orders Infantry 20,200 360 720 1,640 Special Forces 20,200 120 80 820 Costs $84,840 $28,416 $15,200 $30,258 Required: 1. Calculate the total overhead assigned to each product by using only machine hours to calculate a plantwide rate. (Round overhead rate answer to two decimal places and other answers to the nearest dollar.) 2. Calculate consumption ratios for each activity. (Round to two decimal places.) 3. Calculate a rate for each activity by using the associated driver. (Round to two decimal places.) 4. Assign the overhead costs to each product by using the activity rates computed in Requirement 3. 5. CONCEPTUAL CONNECTION: Comment on the difference between the assignment in Requirement 1 and the activity-based assignment.

Answer 1

Answer 1

a) Calculating Plant wide Overhead Rate

= Total Overheads /Total Machine Hours

= (84840 + 28416 + 15200 + 30258) / (20200 + 20200)

= 158714 / 40400

= $ 3.93 per Machine Hour

.

b ) Allocation of overhead to Infantry Toy Soldier

= 20200 hours x $3.93

= $79,386/-

c ) Allocation of overhead to Special Forces Toy Soldier

= 20200 hours x $3.93

= $79,386/-

.

Answer 2 to 4

Formula	Particulars	Machining	Setups	Receiving Orders	Packing Orders
a	Infantry	20,200	360	720	1,640
b	Special Forces	20,200	120	80	820
c = a + b	Total Activity Drivers	40,400	480	800	2,460
Answer 2	Calculating Consumption Ratio for each activity
	Particulars	Machining	Setups	Receiving Orders	Packing Orders
d = a / c	Infantry	0.50	0.75	0.90	0.67
e = b / c	Special Forces	0.50	0.25	0.10	0.33
Answer 3	Calculating Activity Cost Driver Rates
	Particulars	Machining	Setups	Receiving Orders	Packing Orders
f	Activity Cost Pool	$84,840	$28,416	$15,200	$30,258
g = f /c	Activity Cost Driver Rate	$2.10	$59.20	$19.00	$12.30
Answer 4	Allocation of Cost on Basis of Activity
	Particulars	Machining	Setups	Receiving Orders	Packing Orders	Total Allocated Overheads
h = a x g	Infantry	$42,420.00	$21,312.00	$13,680.00	$20,172.00	$97,584.00
i = b x g	Special Forces	$42,420.00	$7,104.00	$1,520.00	$10,086.00	$61,130.00

Allocation of overheads to Infantry toys (on the basis of Activity based costing ) is $97,584/-.

Allocation of overheads to Special Force toys (on the basis of Activity based costing ) is $61,130/-.

Answer 5

Comment :-

Allocation of overhead on the basis of Activity based costing provides detailed and more accurate results

As per Activity Based costing total Overhead allocated to Infantry is more as compared to traditional method. Further allocation of overhead to Special soldier toys on the basis of activity based costing is comparatively lower than traditional method of allocation of overheads.