Question

The following is taken from Clausen Company’s internal records of its factory with two operating departments....

The following is taken from Clausen Company’s internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing.

Direct Labor Hours Machine Hours
Operating Dept. 1 1,410 11,160
Operating Dept. 2 3,290 7,440
Totals 4,700 18,600
Factory overhead costs
Rent and utilities $ 26,800
Indirect labor 22,400
Depreciation - Equipment 20,800
Total factory overhead $ 70,000
Business   Accounting   
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Answer #1

Answer = $ 34,720

Notes:

1. Activity Rates:

Factory overhead costs Amount Cost Driver Activity Activity rate ( Amount/ activity)
Rent and utilities 26,800 Machine Hours 18600 1.440860215
Indirect labor 22,400 Direct Labor Hours 4700 4.765957447
Depreciation - Equipment 20,800 Machine Hours 18600 1.11827957

2. Overhead Allocation:

Factory overhead costs Activity for Operating Dept. 2 Cost Driver Activity rate ( Amount/ activity) Amount ( Activity Rate* Activity)
Rent and utilities 7440 Machine Hours 1.440860215 10,720.00
Indirect labor 3290 Direct Labor Hours 4.765957447 15,680.00
Depreciation - Equipment 7440 Machine Hours 1.11827957 8,320.00
Total amount of overhead allocated to Dept. 2 34,720.00
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