Question

Spin Cycle Architecture uses three activity pools to apply overhead to its projects. Each activity has a cost driver used to allocate the overhead costs to the projects. The activities and related overhead costs are as follows: initial concept formation $40,000; design $300,000; and construction oversight $100,000. The cost drivers and estimated use are as follows.

Activities		Cost Drivers		Estimated Use of Cost Drivers per Activity
Initial concept formation		Number of project changes		20
Design		Square feet		150,000
Construction oversight		Number of months		100

(a) Compute the predetermined overhead rate for each activity.

		Overhead Rate
Initial concept formation		$	per project change
Design		$	per square foot
Construction oversight		$	Per month

(b) Classify each of these activities as unit-level, batch-level, product-level, or facility-level.

Activities		Level
Initial concept formation		Facility-levelUnit-levelBatch-levelProduct-level
Design		Product-levelUnit-levelBatch-levelFacility-level
Construction oversight		Facility-levelBatch-levelUnit-levelProduct-level

Answer 1

(a)-Predetermined overhead rate for each activity.

Overhead rate for Initial concept formation

Overhead rate = $40,000 / 20 Project changes

Overhead rate = $2,000 per Project change

Overhead rate for Design

Overhead rate = $300,000 / 150,000 Square feet

Overhead rate = $2.00 per Square feet

Overhead rate for Construction

Overhead rate = $100,000 / 100 months

Overhead rate = $1,000 per month

(b)-Activity Levels

Initial concept formation - Product Level

Design - Unit Level

Construction oversight - Batch Level