Question

In the past, Best Car has used direct labor hours as a basis of allocating overhead. Now, that they are looking to experiment with ABC, they have identified the following activities, activity cost pools and cost drivers in its manufacturing overhead as shown in the ABC schedule. The cost driver quantity per product line is 80% of total cost driver quantity for product A; and 20% for product B.

Required:

1) Complete the schedule below

2) Compute overhead for model A

3) Compute overhead for model B

Activity	Activity cost pool	Cost driver	Cost driver qty	Pool rate	Product Line	Cost driver quantity per product line	Activity cost per product line	Product Line production Volume	Activity cost per unit of product
1.      Purchasing	$            30,000.00	Purchase orders	1,000		A			Product A 10,000.00
					B			Product B           8,000.00
					Total			Total 18,000.00
2.      Machine related	$       2,000,000.00	Machine hours	250,000		A
					B
					Total
3.       Set up	$          124,000.00	Production runs	120,000		A
					B
					Total
4.       Quality Assurance	$            55,000.00	Inspection Hours	5,000		A
					B
					Total
5.       Facility	$       2,400,000.00	Machine hours	250,000		A
					B
					Total
Total	$       4,609,000.00
								Overhead A
								Overhead B

Answer 1

Solution:

Activity	Activity cost pool	Cost driver	Cost driver qty	Pool rate	Product Line	Cost driver quantity per product line	Activity cost per product line (Pool Rate * Quantity Per Product Line)	Product Line production Volume	Activity cost per unit of product(Product line cost / Production Volume)
1.      Purchasing	$30,000	Purchase orders	1000	$30.000	A	800	$24,000	Product A 10,000.00	$2.40
					B	200	$6,000	Product B    8,000.00	$0.75
					Total	1000		Total 18,000.00
2.      Machine related	$2,000,000	Machine hours	250000	$8.000	A	200000	$1,600,000	Product A 10,000.00	$160.00
					B	50000	$400,000	Product B    8,000.00	$50.00
					Total	250000		Total 18,000.00
3.       Set up	124000	Production runs	120000	$1.033	A	96000	$99,200	Product A 10,000.00	$9.92
					B	24000	$24,800	Product B    8,000.00	$3.10
					Total	120000		Total 18,000.00
4.       Quality Assurance	55000	Inspection Hours	5000	$11.000	A	4000	$44,000	Product A 10,000.00	$4.40
					B	1000	$11,000	Product B    8,000.00	$1.38
					Total	5000		Total 18,000.00
5.       Facility	2400000	Machine hours	250000	$9.600	A	200000	$1,920,000	Product A 10,000.00	$192.00
					B	50000	$480,000	Product B    8,000.00	$60.00
					Total	250000		Total 18,000.00
Total	$4,609,000
								Overhead A	$368.72 (2.4 + 160 + 9.92 + 4.4 + 192)
								Overhead B	$115.23 (0.75+50+3.1+1.38+60)

Note --- Overhead For Product Line A is calculated per unit

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