Question

Ornate Co. manufacturers two products and uses activity based costing to allocate indirect costs. Activity Set up Material orders and receiving Total indirect costs Overhead Alloc. Base 60,000 #set ups $ 48,000# purch orders $ 108,000 Direct labor hours Number of setups Number of purchase orders units produced Lo-Shine 1,000 400 1,800 Hi-Shine 7,000 235 780 75 174 If Ornate Co. uses activity based costing, what is the indirect cost per unit (overhead per unit) for Hi-Shine?

Answer 1

	OVERHEAD RATE					OVERHEAD ALLOCATION TO Hi-Shine
Activity	Overhead cost	/	Total estimated activity	=	Overhead rate	Overhead rate	*	Actual activity used	=	Overhead allocated
Set up	60000		400+235 = 635		94.48819	94.48819		235		22204.72
Material orders and receiving	48000		1800+780 = 2580		18.60465	18.60465		780		14511.63
Total indirect cost										36716.35
Number of units										174
Overhead cost per unit										36716.35/174 =$ 211.01 per unit