Question

Rocket Products manufactures three types of remote control devices: Economy Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost and related cost driver is identified below. 

Activity	Cost	Cost Driver
Material handling	$ 225,000	Number of parts
Material insertion	2,475,000	Number of parts
Automated machinery	840,000	Machine hours
Finishing	170,000	Direct labor hours
Packaging	170,000	Orders shipped
Total	$3,880,000

The following information pertains to the three product lines for next year: 

Units to be produced	Economy	Standard	Deluxe
Orders to be shipped	10,000	5,000	2,000
Number of parte per unit	1,000	500	200
Machine hours per unit	1	3	5
Labor hours per unit	2	2	2

Assume that Rocket is using a volume-based costing system, and the preceding overhead costs are applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the Deluxe product line is closest to:

Answer 1

Answer: $456,471 -->Refer working note 1

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Working note 1 - Calculation of the amount of overhead cost allocated to the Deluxe product line
	Deluxe
Number of units produced                                                      (a)	2000
Number of direct labor hours per unit                                   (b)	2
Total number of labor hours                                                 (c = a x b)	4000
Predetermined overhead rate [Refer working note 2]          (d)	$114.117647058824
Overhead assigned                                                                (c x d)	$456,470.588235294

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Working note 2 - Calculation of predetermined overhead rate
Total estimated overhead costs                                                                      (a)	$3,880,000
Total estimated number of direct labor hours     [Refer working note 3]        (b)	34000
Overhead rate                                                                                                 (a / b)	$114.117647058824

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Working note 3 - Calculation of total estimated number of direct labor hours
Direct labor hours estimated for Economy [Units to be produced x Labor hour per unit = 10,000 x 2]                (a)	20000
Direct labor hours estimated for Standard   [Units to be produced x Labor hour per unit = 5,000 x 2]                (b)	10000
Direct labor hours estimated for Deluxe   [Units to be produced x Labor hour per unit = 2,000 x 2]                (c)	4000
Total number of labor hours                           (a + b + c)	34000