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Woodland Industries manufactures and sells 5,500 units each of two types of windows: Window A and...

Woodland Industries manufactures and sells 5,500 units each of two types of windows: Window A and Window B. Woodland Industries estimates a total of $6,210,000 in overhead across both product lines. Overhead is traditionally allocated based on a total of 30,000 direct labor hours for both product lines where Window A uses 14,400 direct labor hours while Window B uses 15,600 direct labor hours. Woodland Industries is considering activity based costing using three activities: Materials Handling, Cutting and Lathing, Assembly and Inspection. Materials Handling totals $560,000, Cutting and Lathing totals $2,695,000 and Assembly and Inspeciton totals $2,955,000. The cost driver for Materials Handling is number of parts. The cost driver for Cutting and Lathing is number of units. The cost driver for Assembly and Inspection is direct labor hours. In addition to the units sold and direct labor hours used by product line discussed above, Window A uses 88,000 parts while Window B uses 72,000 parts. Required: a. How much overhead is allocated to Window A using the activity based costing method?

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Answer #1
Activity Total cost(1) Total cost driver(2) Activity rate(1/2)
Materials Handling 560000 160000 3.50 per part
Cutting and Lathing 2695000 11000 245.00 per unit
Assembly and Inspection 2955000 30000 98.50 per DLH
Activity Activity incurred Activity rate Overhead allocated to Window A
Materials Handling 88000 3.50 308000
Cutting and Lathing 5500 245.00 1347500
Assembly and Inspection 14400 98.50 1418400
Total 3073900
Overhead allocated to Window A using the activity based costing method $3073900
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