Question

ignment CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT Exercise 7-9 Your answer is partially correct. Try again. Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $810,495 is based on 38,500 machine hours. In an initial analysis of overhead costs, Eric Parker has identified the following activity cost pools. Cost Pool Product assembly Machine setup and calibration Product inspection Raw materials storage Expected Cost Expected Activities $325,325 38,500 Machine hours 274,950 1,950 setups 127,980 1,620 batches 82,240 514,000 pounds $ 810,495 Eric Parker is taking the next step in his exploration of activity-based costing and wants to examine the overhead costs that would be allocated to two of the department's four products. He has gathered the following budget information about each product. Component 3F5 980 Component T76 11,100 Driver Usage Machine hours Setups Batches Pounds of raw materials 15 10,000 10,000 Version 4.24.16.2 Privacy Policy 2000-2019 John Wiley & Sons, Inc. All Rights Reserved. A Division of John Wiley & Sons, Inc.

Answer 1

Requirement b

	Component 3F5	Component T76
Overhead allocated	$            17,524.00	$         99,259.00

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Product Assembly	Number of Machine hour	$      325,325.00	38500	$               8.45	Per Machine hour
Machine setup and calibration	Number of setup	$      274,950.00	1950	$          141.00	Per setup
Product Inspection	Number of batch	$      127,980.00	1620	$             79.00	Per batch
Raw material storage	Number of pound	$        82,240.00	514000	$               0.16	Per pound

.

Cost assigned to Component 3F5
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Product Assembly	$                       8.45	980	$           8,281.00
Machine setup and calibration	$                   141.00	43	$           6,063.00
Product Inspection	$                     79.00	20	$           1,580.00
Raw material storage	$                       0.16	10000	$ 1,600.00
Total Overheads assigned			$         17,524.00

..

Cost assigned to Component T76
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Product Assembly	$                       8.45	11100	$         93,795.00
Machine setup and calibration	$                   141.00	19	$           2,679.00
Product Inspection	$                     79.00	15	$           1,185.00
Raw material storage	$                       0.16	10000	$           1,600.00
Total Overheads assigned			$         99,259.00