Question

Sonoma Manufacturing has five activity cost pools and two products (a budget tape vacuum and a deluxe tape vacuum). Production is 700,000 units of Budget and 200,000 units of Deluxe. Information is presented below:
				Cost Drivers by Product
Activity Cost Pool		Cost Driver	Estimated Overhead	Budget	Deluxe
Ordering and Receiving		Orders	$120,000	600	400
Machine Setup		Setups	$297,000	500	400
Machining		Machine hours	$1,000,000	150,000	100,000
Assembly		Parts	$1,400,000	1,200,000	800,000
Inspection		Inspections	$300,000	550	450
	Total		$3,117,000
Round answers to the nearest cent.

Required:

1. Assume simple costing system used machine hours only as the single cost allocation base.

   1. Compute a single overhead rate

   2. Compute the amount of overheads allocated to Budget and Deluxe.

   3. Compute the amount of overhead per unit allocated to Budget and Deluxe.

b.	Compute total overhead costs assigned to each product and the overhead cost per unit for each product, using activity-based costing.

Answer 1

Question A

Single Plantwide Overhead Rate = Total Estimated Manufacturing Overhead / Total Machine Hours

Total Estimated Manufacturing Overhead = $ 31,17,000

Total Machine Hours = 250,000 Hours

Single Plantwide Overhead Rate = 31,17,000 / 250,000

Single Plantwide Overhead Rate = $ 12.47 per Machine Hour

Question 2 and 3

Particulars	Budget	Deluxe
Machine Hours	150,000	100,000
* Single Plantwide Overhead Rate	12.47	12.47
Total Estimated Manufacturing Overhead	1,870,200	1,246,800
÷ Number of Units Produced	700,000	200,000
Manufacturing Overhead Cost per Unit	2.67	6.23

Question 4

Manufacturing Overhead Allocation using Activity Based Costing

	A	B	C=A/B
Particulars	Activity Cost	Activity Driver	Activity Allocation Rates
Ordering and Receiving	120,000	1,000	120	Per Order
Machine Setups	297,000	900	330	Per Setup
Machining	1,000,000	250,000	4	Per Machine Hour
Assembly	1,400,000	2,000,000	0.70	Per Part
Inspection	300,000	1,000	300	Per Inspection
Total	31,17,000

Activity Driver is Total of Activity Driver for Budget and Deluxe.

	A	B	C=A*B	D	E = A*D
Particulars	Activity Allocation Rate	Activity for Budget	Total Overhead for Budget	Activity for Deluxe	Total Overhead for Deluxe
Machining and Ordering	120	600	72,000	400	48,000
Machine Setup	330	500	165,000	400	132,000
Machining	4	150,000	600,000	100,000	400,000
Assembly	0.70	1,200,000	840,000	800,000	560,000
Inspection	300	550	165,000	450	135,000
Total			1,842,000		1,275,000

Particulars	Budget	Deluxe
Total Manufacturing Overheads	1,842,000	1,275,000
÷ Number of Units Produced	700,000	200,000
Manufacturing Overhead per Unit	2.63	6.38