Question

# Bonita Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead...

Bonita Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information.

 Car Truck Estimated wheels produced 36,000 11,000 Direct labor hours per wheel 1 3

Total estimated overhead costs for the two product lines are \$800,400.

A) Calculate overhead rate. (Round answer to 2 decimal places, e.g. 12.25.)

 Overhead rate \$ per direct labor hour

B) Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs.

 Car wheels \$ Truck wheels \$

C) Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

 Activity Cost Pools Estimated Use of Cost Drivers Estimated Overhead Costs Setting up machines 1,000 setups \$207,000 Assembling 69,000 labor hours 345,000 Inspection 1,200 inspections 248,400

D) Compute the activity-based overhead rates for these three cost pools.

 Overhead Rates Setting up machines \$ Assembling \$ Inspection \$

E) Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information.

 Estimated Use of Cost Drivers per Product Car Truck Number of setups 200 800 Direct labor hours 36,000 33,000 Number of inspections 100 1,100
 Car Wheels Truck Wheels Setting up machines \$ \$ Assembling \$ \$ Inspection \$ \$ Total cost assigned \$ \$

 A) Overhead Rate = Total estimated OH / Total Direct Labor Hours = \$ 800400 / 69000 = \$   11.60

Workings:

 Total Direct Labor Hours: Car (36000 x 1) 36000 Truck (11000 x 3) 33000 69000
 B) OH Assigned to: Car (36000 x \$ 11.60) \$ 4,17,600.00 Truck (33000 x \$ 11.60) \$ 3,82,800.00
 D) OH Rates Setting up machines \$ 207.00 (\$ 207000 / 1000) Assembling \$      5.00 (\$ 345000 / 69000) Inspection \$ 207.00 (\$ 248400 / 1200)
 E) OH Assigned Car Truck Setting up machines \$    41,400.00 (200 x \$ 207) \$ 1,65,600.00 (800 x \$ 207) Assembling \$ 1,80,000.00 (36000 x \$ 5) \$ 1,65,000.00 (33000 x \$ 5) Inspection \$    20,700.00 (100 x \$ 207) \$ 2,27,700.00 (1100 x \$ 207) \$ 2,42,100.00 \$ 5,58,300.00

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