Question

5. The controller for Alabama Cooking Oil Co. established the following overhead cost pools and cost drivers: Budgeted Estimated Cost Pool Overhead Cost Driver Cost Driver Level Machine setups $300,000 # of setups 230 setups Material handling 248,600 # of barrels 15,600 barrels Quality control 585,800 # of inspections 2,080 inspections Other overhead 445,800 # of machine hours 22,600 machine hours An order of 1,800 barrels of cooking oil used: Machine setups 30 setups Material handling 1,890 barrels Quality inspections 334 inspections Machine hours 2,112 machine hours Required: (a) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? (Round your answer to 2 decimal places.) (b) Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver? (c) Utilizing ABC, how much total overhead is assigned to the order?

Answer 1

(a) Overhead rate = Total estimated overheads/Total machine hours = $1580200/22600 = $69.92

(b) Overheads assigned = Machine hours used x Overhead rate = 2112 x $69.92 = $147671.04

(c) Overheads assigned: $204991.28

Cost Pool	Overhead Cost $	Cost Driver Level	Overhead Rate $	Cost Driver Usage	Allocated Overhead $
Machine setups	300000	230	1304.35	30	39130.50
Material handling	248600	15600	15.94	1890	30126.60
Quality control	585800	2080	281.63	334	94064.42
Other overhead	445800	22600	19.73	2112	41669.76
Total $	1580200				204991.28

Note: Intermediate calculations and answers rounded off to 2 decimal places.