Question

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	7	per direct labor-hour
Machine processing	$	4	per machine-hour
Machine setups	$	40	per setup
Production orders	$	150	per order
Shipments	$	125	per shipment
Product sustaining	$	825	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	1,200	40
Machine-hours	3,200	30
Machine setups	13	2
Production orders	13	2
Shipments	26	2
Product sustaining	2	2

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Answer 1

K425 M67 280 120 Answer: Activity cost pool Supporting direct labor Machine Processing Machine setups Production orders Shipments Product sustaining Total overhead cost 8400 12800 520 1950 80 3250 1650 300 250 1650 28570 2680 Working notes: Supporting direct Labor = Activity rate per Direct labor hour *Expected Supporting direct labor Machine processing = Activity rate per Machine hour *Expected Machine processing per hour Machine setup =Activity rate per Machine setup * Expected Machine setups Production orders = Activty rate per Production order * Expected production orders Shipments = activity rate per shipment * Expected shipment activities Product sustaining = Activity rate per product * Expected Product activity