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 | $ | 8 | per direct labor-hour |
| Machine processing | $ | 3 | per machine-hour |
| Machine setups | $ | 50 | per setup |
| Production orders | $ | 170 | per order |
| Shipments | $ | 125 | per shipment |
| Product sustaining | $ | 800 | 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 | 1,025 | 50 |
| Machine-hours | 3,600 | 40 |
| Machine setups | 15 | 1 |
| Production orders | 15 | 1 |
| Shipments | 30 | 1 |
| Product sustaining | 1 | 1 |
How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?
|
Solution:
| Computation of overhead costs - Klumper Corporation | ||||||
| Activity | Activity Base | Activity Rate | K425 | M67 | ||
| Usage | Allocated Costs | Usage | Allocated Costs | |||
| Supporting direct labor | Direct labor hours | $8.00 | 1025 | $8,200.00 | 50 | $400.00 |
| Machine processing | Machine hours | $3.00 | 3600 | $10,800.00 | 40 | $120.00 |
| Machine setup | Nos of setup | $50.00 | 15 | $750.00 | 1 | $50.00 |
| Production orders | Nos of orders | $170.00 | 15 | $2,550.00 | 1 | $170.00 |
| Shipments | Nos of shipment | $125.00 | 30 | $3,750.00 | 1 | $125.00 |
| Product Sustaining | Nos of products | $800.00 | 1 | $800.00 | 1 | $800.00 |
| Total overhead costs | $26,850.00 | $1,665.00 | ||||
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