Question

Orange, Inc. has identified the following cost drivers for its expected overhead costs for the year:

Cost Pools	Budgeted Cost			Cost Driver	Cost Driver Level
Setup	$	160,000		Number of setups	800
Ordering		80,000		Number of orders	4,000
Maintenance		200,000		Machine hours	20,000
Power		40,000		Kilowatt hours	40,000

Total direct labor hours budgeted = 8,000 hours.

The following data applies to Product X, one of the products completed during the year.

Direct materials	$	4,000
Direct labor	$	4,800
Units completed		400
Direct labor hours		160
Number of setups		16
Number of orders		32
Machine hours		200
Kilowatt hours		400

If the activity-based cost drivers are used to allocate overhead cost, the total overhead cost of Product X will be:

Answer 1

Cost Pools	Activity rates
Setup [ 160000 / 800 ]	200	per setup
Ordering [ 80000 / 4000 ]	20	per order
Maintenance [ 200000 / 20000 ]	10	per maintenance hour
Power [ 40000 / 40000 ]	1	per Kilowatt hour

	Product X
Overhead allocation :
Setup [ 16 * 200 ]	3200
Ordering [ 32 * 20 ]	640
Maintenance [ 200 * 10 ]	2000
Power [ 400 * 1 ]	400
Total overhead cost	6240