Question

Nile Corp. has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:

Cost Pool	Overhead Costs	Cost Driver	Activity Level
Supervision	$325,000	Direct Labor Hours	280,000
Maintenance	$135,000	Machine Hours	70,000
Facility Rent	$250,000	Square Feet	35,000
Total Overhead Costs	$710,000

The accounting records show the Mossman Job consumed the following resources:

                                   Cost driver              Actual level

                        Direct labor-hours              1,700

                             Machine-hours                240

                       Square feet of area              50

If Nile Corp. uses the three activity cost pools to allocate overhead costs, what are the activity-cost driver rates for supervision of direct labor, machine maintenance, and facility rent, respectively?

a.       What is the activity rate for Supervision cost pool?   

b.       What is the activity rate for Maintenance cost pool?   

c.       What is the activity rate for Facility Rent cost pool?

d.       How will MOH be allocated to Job M?

Answer 1

Requirement A:

Activity rate for Supervision cost pool = 325000/280000 = $ 1.16 per direct labor hour

Requirement B:

Activity rate for Maintenance cost pool = 135000/70000 = $ 1.93 per machine hour

Requirement C:

Activity rate for Facility Rent cost pool = 250000/35000 = $ 7.14 per Square feet

Requirement D:

MOH Allocation to job M:

Particulars	Amount($)
Supervision cost(1700*1.16)	1972
Maintenance cost(240*1.93)	463.2
Facility Rent(50*7.14)	357
Allocated MOH to Job M	2792.2