Question

Calculator Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The Indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Procurement Scheduling Materials handling Product development Production Activity Cost Activity Base $363,600 Number of purchase orders 220,900 Number of production orders 439,300 Number of moves 770,800 Number of engineering changes 1,448,300 Machine hours Number of Production Orders Number of Moves Number of Number of Engineering Changes 13 Machine Hours Number of Purchase Orders 4,120 2,200 12,300 Units 330 Disk drives 1,500 5 1,230 780 3,900 9,300 175 710 Tape drives Wire drives 2,500 4,100 2,500 26 10,200 The activity rate for the product development cost pool is a $17,518 per engineering change b. $78,832 per engineering change c. $36,788 per engineering change d. 58,759 per engineering change

Answer 1

1. As the indirect labor are associated on the basis of activity based costing, and the product development cost is allocated on the basis of Number of engineering changes,

Activity rate for product development cost = Total product development Cost /Total Number of engineering changes

Total Number of engineering changes = 13 + 5 + 26 = 44

Therefore, Activity rate for product development cost = $770,800/44 = $17,518 per engineering change

Option a is the correct answer.

2. To calculate the overhead costs for producing 11,700 units, we will need to calculate overhead cost per hour for both the departments.

Overhead cost per hour for fabrication department = Total Overhead Cost / Total No of Direct labour hours

Therefore, Overhead cost per hour for fabrication department = $732,480 / 381,500 = $1.92 per hour

Overhead cost per unit of lamp in fabrication department = Overhead cost per hour * No of Hours per unit

Therefore, Overhead cost per unit of lamp in fabrication department = $1.92 * 4 = $7.68

Overhead cost per hour for assembly department = Total Overhead Cost / Total No of Direct labour hours

Therefore, Overhead cost per hour for assembly department = $559,504 / 74,800 = $7.48 per hour

Overhead cost per unit of lamp in assembly department = Overhead cost per hour * No of Hours per unit

Therefore, Overhead cost per unit of lamp in assembly department = $7.48 * 7 = $52.36

Hence, total overhead cost per unit of lamp = Overhead Cost in Fabrication department + Overhead Cost in Assembly department

Hence, total overhead cost per unit of lamp = $7.68 + $52.36 = $60.04 per unit.

Therefore, total factory overhead cost allocated to produce 11,700 units = 11,700 * $60.04 = $702,468

Hence, option d is the correct answer.