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One of Stine Company’s activity cost pools is machine setups, with estimated overhead of $140000. Stine...

One of Stine Company’s activity cost pools is machine setups, with estimated overhead of $140000. Stine produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?

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Answer #1

Estimated overhead cost of activity cost pool of machine setups = $140000

Stine produces sparklers (400 setups) and lighters (600 setups).

Machine setups required for producing sparklers = 400

Machine setups required for producing lighters = 600

Total machine setups required = 400 + 600 = 1,000

Hence:

Machine setup activity driver rate = Estimated overhead cost of activity cost pool of machine setups / Total machine setups required

= $140000 / 1,000

= $140 per setup

Machine setup cost pool that should be assigned to sparklers = Machine set activity driver rate * Machine setups required for producing sparklers

= $140 * 400

= $56,000

Machine setup cost pool that should be assigned to sparklers = $56,000

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