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In: Accounting

Isadore’s Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently...

Isadore’s Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data:

Cost Driver Volume
Activity Cost Driver Cost Pencils Pens
Setting up Number of setups $ 102,000 22 29
Inspecting Number of parts 26,100 3 6
Packing and shipping Number of boxes shipped 50,000 50,000 75,000
Total overhead $ 178,100

Required:

a. Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.)

b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.2 for pencils and 0.2 for pens and that 50,000 boxes of pencils and 75,000 boxes of pens were produced during the period. (Do not round intermediate calculations.)

Solutions

Expert Solution

Req 1.
Activity rate:
Activity    OH cost Drivers Rate
Setting up 102000 51 2000
Inspecting 26100 9 2900
Packing and Shipping 50000 125000 0.4
Oh allocated as per ABC
Pencils Pens
Activity Rate Drivers OH cost Drivers OH cost
Setting up 2000 22 44000 29 58000
Inspecting 2900 3 8700 6 17400
Packing and Shipping 0.4 50000 20000 75000 30000
Total Oh 72700 105400
Req 2.
Total Oh incurred 178100
Divide: Total DLH (50000*0.2+75000*0.2) 25000
OH rate per DLH 7.124 per DLH
OH allocated as per DLH
Pencil Pen
Number of units 50000 75000
Multiply: DLH required per unit 0.2 0.2
Total DLH required 10000 15000
Multiply: OH rate per DLH 7.124 7.124
OH applied 71240 106860

ekkarill92 answered 1 year ago
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