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 43,330 15,000
Direct labor hours per wheel 1 3
Total estimated overhead costs for the two product lines are
$758,190.
Overhead rate $ 8.58 per direct labor hour
The overhead cost assigned to the car wheels and truck wheels,
assuming that direct labor hours is used to allocate overhead costs.
Car wheels $ 371,771.40
Truck wheels $ 386,100
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.
Activity Cost Pools Expected Use of Cost Drivers
Estimated Overhead
Costs
Setting up machines 1,000 setups $222,000
Assembling 88,330 labor hours 264,990
Inspection 1,200 inspections 271,200
Compute the activity-based overhead rates for these three cost
pools.
Overhead Rates
Setting up machines $
Assembling $
Inspection $
TUTORIAL PREVIEW
|
(a)
|
Direct labor hours for car wheels
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(43,330 X 1)
|
=
43,330
|
|
|
Direct labor hours for truck wheels
|
(15,000 X 3)
|
=
45,000
|
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