Question

Pretty Dog Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:

Product	Number of Setups			Number of Components			Number of Direct Labor Hours
Standard		3			30		650
Deluxe		7			50		150
Overhead costs	$	30,000		$	50,000

Assume a traditional costing system applies the overhead costs based on direct labor hours.

Required:

a. What is the total amount of overhead costs assigned to the standard model?

b. What is the total amount of overhead costs assigned to the deluxe model?

Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

c. What is the total amount of overhead costs assigned to the standard model?

d. What is the total amount of overhead costs assigned to the deluxe model?

Answer 1

Ans.a	Total overhead cost (30000 + 50000)   =   80000
	Total direct labor hours (650+150)   =   800
	Overhead cost assigned to Standard Model
	80000 / 800 * 650
	65000
Ans.b	Overhead cost assigned to Deluxe Model
	80000 / 800 * 150
	15000
Ans.c	Total No. of setups (3 + 7)	10
	Total No. of Components (30 + 50)	80
	Standard Model:
	Setup cost (30000 / 10 * 3)	9000
	Component cost (50000 / 80 * 30)	18750
	Total Overhead cost assigned to Standard Model	27750
Ans.d	Deluxe Model:
	Setup cost (30000 / 10 * 7)	21000
	Component cost (50000 / 80 * 50)	31250
	Total Overhead cost assigned to Standard Model	52250