Question

10. Vertex Tires manufactures tires for dune buggies and has two different products, nubby tires and smooth tires. The company produces 5,000 nubby tires and 10,000 smooth tires each year and incurs $167,000 of overhead costs. The following information is available:

     Activity       Total Cost         Cost Driver  

Materials handling $60,000       Number of requisitions

Machine setups      50,000       Number of setups

Quality inspections 57,000       Number of inspections

For the nubby tires, the company has 400 requisitions, 200 setups, and 200 inspections. The smooth tires require 600 requisitions, 300 setups, and 400 inspections.

Instructions

Determine the overhead rate for each activity.

11. S.C. Johnson Manufacturing has five activity cost pools and two products (a budget lawnmower and a deluxe lawnmower). Information is presented below:

Activity Cost Pool	Cost Driver	Est. Overhead	Cost Drivers by Product Budget     Deluxe		Overhead Rate
Ordering and Receiving	Orders	$120,000	600	400	$120/order
Machine Setup	Setups	297,000	500	400	$330/setup
Machining	Machine hours	1,000,000	150,000	100,000	$4/machine hour
Assembly	Parts	1,400,000	1,200,000	800,000	$0.70/part
Inspection	Inspections	300,000	550	450	$300/inspection

Instructions

Compute the overhead cost per unit for each product. Production is 700,000 units of Budget and 200,000 units of Deluxe. Round your answer to the nearest cent.

Answer 1

10) Calculate overhead rate

	Overhead rate
Materials handling (60000/1000)	$60 per requisition
Machine setups (50000/500)	$100 per setup
Quality inspections (57000/600)	$95 per inspection

11) Calculate overhead cost per unit

	Budget	Deluxe
Ordering and receiving	72000	48000
Machine setup	165000	132000
Machining	600000	400000
Assembly	840000	560000
Inspection	165000	135000
Total overhead cost	1842000	1275000
Units	700000	200000
Overhead unit cost	2.63	6.38