Question

Fischer Company identified the following activities, costs, and activity drivers:

Activity	Expected Costs	Expected Activity
Handling Parts	425,000	25,00 parts in stock
Inspecting Parts	390,000	940 batches
Processing Purchase Orders	220,000	440 orders
Designing Packaging	230,000	5 models

a. Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals).

b. Compute separate rates for each of the four activities using the activity-based costing.

Answer 1

a. Plantwide Overhead Rate = Total Expected Costs / Total Direct Labor Hours

= ( $ 1,265,000 ) / 70,000 Direct Labor Hours

= $ 18.07

Hence the correct answer is $ 18.07 per direct labor hour.

Note :

1. Total Expected Costs =

Activity	Expected Costs
Handling Parts	4,25,000
Inspecting Parts	3,90,000
Processing Purchase Orders	2,20,000
Designing Packaging	2,30,000
	12,65,000

b.

The correct answer is :

Activity	Activity-based overhead rates
Handling Parts	170.00
Inspecting Parts	414.89
Processing Purchase Orders	500.00
Designing Packaging	46,000.00

Note :

Activity	Expected Costs	Expected Activity	Activity-based overhead rates  ( Estimated Costs/ Expected Activity)
Handling Parts	4,25,000	2,500	170.00
Inspecting Parts	3,90,000	940	414.89
Processing Purchase Orders	2,20,000	440	500.00
Designing Packaging	2,30,000	5	46,000.00

2. The answer has been rounded off to two decimal places.