Question

two of the activity cost pools for Calgary company are:

        a. machining ($150,000)

        b. inspections ($80,000)

possible cost drivers are direct labor hours (7,000), machine hours (7,500), square footage (10,000), and number of inspections (80).

Required:

Calculate the single appropriate overhead rate for each activity.

Answer 1

Overhead allocation rate for an activity

= Budgeted overhead / Budgeted activity

For Machining department, budgeted activity will be machine hours

For Inspections department, budgeted activity will be number of inspections

So, Overhead rate is calculated as below

a)

Machining department

= Overhead pool / Machine hours

= $150,000 / 7,500

= $20 per machine hour

b)

Inspections department

= Overhead pool / Number of Inspections

= $80,000 / 80

= $1,000 per inspection