Question

Xie Company identified the following activities, costs, and activity drivers for 2017. The company manufactures two types of go-karts: Deluxe and Basic.

Activity	Expected Costs			Expected Activity
Handling materials	$	625,000			100,000	parts
Inspecting product		900,000			1,500	batches
Processing purchase orders		105,000			700	orders
Paying suppliers		175,000			500	invoices
Insuring the factory		300,000			40,000	square feet
Designing packaging		75,000			2	models

   
Required:
1. Compute a single plantwide overhead rate, assuming that the company assigns overhead based on 125,000 budgeted direct labor hours.
2. In January 2017, the Deluxe model required 2,500 direct labor hours and the basic model required 6,000 direct labor hours. Assign overhead costs to each model using the single plantwide overhead rate.

Answer 1

1. single plantwide overhead rate = Total Expected Costs / Total budgeted direct labor hours

= $ 2,180,000 / 125,000 Hours

= $ 17.44 per direct labor hour.

Hence the correct answer is $ 17.44

2. Overhead costs assigned to  Deluxe model = single plantwide overhead rate * Total direct labor hours for the Deluxe model

= $ 17.44 * 2,500 direct labor hours

= $ 43,600

Overhead costs assigned to  Basic model = single plantwide overhead rate * Total direct labor hours for the Basic model

= $ 17.44 * 6,000 direct labor hours

= $ 104,640

Hence the correct answer is $43,600  and $ 104,600