# cost POOL

Alonzo Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, YuYu Ortega, has developed the following information:

Car Truck 43,000 20,000 2 4

Total estimated overhead costs for the two product lines are 830,000.

A) Calculate the overhead cost assigned to the car wheels and truck wheels, assuming that direct labour hours are used to allocate overhead costs.

Car wheels \$ enter a dollar amount \$ enter a dollar amount \$ enter a total amount

B) YuYu 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 Estimated Use of Cost Drivers Estimated Overhead Costs 800 set-ups \$ 408,000 37,000 labour hours 370,000 104 inspections 52,000

Calculate the activity-based overhead rates for these three cost pools.

Cost Pool Rate \$ enter a dollar amount per set-up \$ enter a dollar amount per labour hr \$ enter a dollar amount per inspection

A
 WORKING ANS TOTAL LABOUR HRS (43,000*2)+(20,000*4) =166,000 CAR WHEELS (830,000/166,000)*(43,000*2) =430,000 TRUCK WHEELS (830,000/166,000)*(20,000*4) =400,000 TOTAL OVERHEAD (430,000+400,000) =830,000

B

 ANS WORKING COST POOL RATE SETTING UP MACHINES 510 PER SET-UP 40,800/800 ASSEMBLING 10 PER LABOUR HR 370,000/37,000 INSPECTION 500 PER INSPECTION 52,000/104

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