Question

Texas Co. established the following overhead cost pools and cost drivers: Budgeted Estimated Overhead Cost Pool...

Texas Co. established the following overhead cost pools and cost drivers:

Budgeted Estimated
Overhead Cost Pool Overhead Cost Driver Cost Driver Level
Quality controls $780,000 # of inspections 26,000 inspections
Machine setups $720,000 # of setups 12,000 setups
Other overhead costs $900,000 # of machine hrs 50,000 machine hrs
Total overhead costs $2,400,000
A recent order for sailboats used:
Quality inspections 750 inspections
Machine setups 500 setups
Machine hours (MHs) 2,400 machine hours

Required:

a. What is the overhead rate per machine hour if the number of machine hours (MHs) is used as a single cost driver under traditional costing system?

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?

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Homework Answers

Answer #1
Req 1.
Total Overheads cost 24,00,000
Divide: Total MH 50,000
OH rate per MH 48 per MH
Req 2.
MH used in the order 2400
Multiply: OH rate per MH 48
Overheads applied 115200
Req 3.
Overheads applied as per Activity based costing
Activity Total OH Driver Rate Driver used in Job OH applied
Quality control 780000 26000 30 750 22500
Mchine setup 720000 12000 60 500 30000
Other overheads 900000 50000 18 2400 43200
Total OH applied as per ABC 95700
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