Question

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	10	per direct labor-hour
Machine processing	$	3	per machine-hour
Machine setups	$	40	per setup
Production orders	$	160	per order
Shipments	$	130	per shipment
Product sustaining	$	875	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	1,100	40
Machine-hours	2,600	30
Machine setups	11	2
Production orders	11	2
Shipments	22	2
Product sustaining	2	2

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Answer 1

	K425	M67
Supporting direct labor	$11,000	$400
Machine processing	$7,800	$90
Machine setups	$440	$80
Production orders	$1,760	$320
Shipments	$2,860	$260
Product sustaining	$1,750	$1,750
Total overhead cost	$25,610	$2,900

Supporting direct labor = Direct labor-hours * Supporting direct labor

K425 = 1,100 * $10

= $11,000

M67 = 40 * $10

= $400

Machine processing = Machine-hours * Machine processing

K425 = 2,600 * $3

= $7,800

M67 = 30 * $3

= $90

Machine setups = Machine setups * $40 per setup

K425 = 11 * $40

= $440

M67 = 2 * $40

= $80

Production orders = Production orders * Rate per order

K425 = 11 * $160

= $1,760

M67 = 2 * $160

= $320

Shipments = Shipments * Rate per shipment

K425 = 22 * $130

= $2,860

M67 = 2 * $130

= $260

Product sustaining = Product sustaining * Rate per product

K425 = 2 * $875

= $1,750

M67 = 2 * $875

= $1,750