Question

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	6	per direct labor-hour
Machine processing	$	3	per machine-hour
Machine setups	$	45	per setup
Production orders	$	150	per order
Shipments	$	115	per shipment
Product sustaining	$	775	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	1,175	50
Machine-hours	3,600	40
Machine setups	21	1
Production orders	21	1
Shipments	42	1
Product sustaining	1	1

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Answer 1

Answer :
Calculation of Total Overhead Cost
Activity Cost Pool	Products
	K425		M67
Supporting direct labor	$     7,050		$         300
Machine processing	$   10,800		$         120
Machine setups	$         945		$           45
Production orders	$     3,150		$         150
Shipments	$     4,830		$         115
Product sustaining	$         775		$         775
	------------------		----------------
TOTAL OVERHEAD COST	$   27,550		$     1,505
	==========		=========
Working Notes :
Cost of Expected Activity 1
Cost for Supporting Direct Labor
= Direct Labor-hours required per year X Supporting Direct Labor rate per hour
For Product K425
= 1,175 Direct Labor hours X $ 6 per hour
= $ 7,050
For Product M67
= 50 Direct Labor hours X $ 6 per hour
= $ 300
Cost Expected Activity 2
Cost for Machine Processing
= Machine-hours required per year X Machine Processing rate per hour
For Product K425
= 3,600 Machine hours X $ 3 per hour
= $ 10,800
For Product M67
= 40 Machine hours X $ 3 per hour
= $ 120
Cost Expected Activity 3
Cost for Machine Setups
= Machine Setups per year X Rate per Machine Setup
For Product K425
= 21 Setups X $ 45 per Setup
= $ 945
For Product M67
= 1 Setups X $ 45 per Setup
= $ 45
Cost Expected Activity 4
Cost for Production orders
= Production orders per year X Rate per Production order
For Product K425
= 21 Production orders X $ 150 per Production order
= $ 3,150
For Product M67
= 1 Production order X $ 150 per Production order
= $ 150
Cost Expected Activity 5
Cost for Shipments
= Shipments per year X Rate per Shipment
For Product K425
= 42 Shipements X $ 115 per Shipment
= $ 4,830
For Product M67
= 1 Shipements X $ 115 per Shipment
= $ 115
Cost Expected Activity 6
Cost for Product Sustaining
= Products Sustaining per year X Rate per Product Sustaining
For Product K425
= 1 Product Sustaining X $ 775 per Product
= $ 775
For Product M67
= 1 Product Sustaining X $ 775 per Product
= $ 775