E4-4 Altex
Inc. manufactures two products: car wheels and truck wheels. To determine the
amount of overhead to assign to each product line, the controller, Robert
Hermann, has developed the following information.
|
Car
|
Truck
|
|
|
Estimated wheels produced
|
40,000
|
10,000
|
|
Direct labor hours per wheel
|
1
|
3
|
|
Total estimated overhead costs for the two
product lines are
|
$770,000
|
Instructions
a. Compute
the overhead cost assigned to the car and truck wheels, assuming that direct
labor hours is used to allocate overhead costs.
b Hermann
is not satisfied with the traditional method of allocating overhead because he
believes that most of the overhead costs relate to the truck wheel product line
because of its complexity. He therefore develops the following three activity
cost pools and related cost drivers to better understand these costs.(c) Compute the cost that is assigned to the car wheels and truck product lines using an activity-based costing system, given the following information.
d What do you believe Hermann should do? (Enter your text answer in the block below.)
TUTORIAL PREVIEW
a. Compute
the overhead cost assigned to the car and truck wheels, assuming that direct
labor hours is used to allocate overhead costs.
|
Direct labor hours for car wheels
(40,000 x 1)
|
40,000
|
|
Direct labor hours for truck wheels
(10,000 x 3)
|
30,000
|
|
Total direct labor hours
|
70,000
|
File name: E4-4 Altex Inc.xls File type: xls PRICE: $6
