Question

Chan Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: fast and standard.

Activity	Expected Costs		Activity Driver
Handling materials	$	665,000	190,000	parts
Inspecting product		1,188,000	2,160	batches
Processing purchase orders		150,000	1,250	orders
Paying suppliers		220,000	880	invoices
Insuring the factory		390,000	50,000	square feet
Designing packaging		84,000	2	models

1. Compute a single plantwide overhead rate assuming that the company assigns overhead based on 145,000 budgeted direct labor hours.
2. In January of this year, the fast model required 1,500 direct labor hours and the standard model required 5,000 direct labor hours. Assign overhead costs to each model using the single plantwide overhead rate.

Answer 1

1. Plantwide OH Rate :

Estimated Overhead	$ 2,697,000	$ 18.60	per Direct Labor Hour
Estimated Direct Labor Hours	145,000

2. Overhead Cost :

Model	Working	Overhead Cost
Fast	1,500 * $ 18.60	$ 27,900
Standard Model	5,000 * $ 18.60	$ 93,000

Working :

Estimated OH

Handling materials	$ 665,000
Inspecting product	$ 1,188,000
Processing purchase orders	$ 150,000
Paying suppliers	$ 220,000
Insuring the factory	$ 390,000
Designing packaging	$ 84,000
Total	$ 2,697,000

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