Lenoir Company manufactures two products—28,000 units of Product D and 12,000 units of Product R. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products D and R:
Activity Cost Pool Activity Measure Estimated
Overhead Cost Expected Activity
Machining. . . . . . . . . . . . . Machine-hours $400,000 20,000 MHs
Machine setups . . . . . . . . . . Number of setups $200,000 400 setups
Product design . . . . . . . . . . Number of products $168,000 2 products
General factory. . . . . . . . . . Direct labor-hours $600,000 24,000 DLHs
Activity Measure Product D Product R
Machine-hours. . . . . . . . . . . . . . . 14,000 6,000
Number of setups . . . . . . . . . . . . . 100 300
Number of products . . . . . . . . . . . . 1 1
Direct labor-hours . . . . . . . . . . . . 16,000 8,000
Required:
What is the activity rate for the Machining activity cost pool?
What is the activity rate for the Machine Setups activity cost pool?
What is the activity rate for the Product Design activity cost pool?
What is the activity rate for the General Factory activity cost pool?
What is the total overhead assigned to Products D and R under the ABC system?
Please provide step by step instructions
1) Machining activity rate = 400000/20000 = 20 per machine hour
2) Machine setup = 200000/400 = 500 per setup
3) Product design = 168000/2 = 84000 per product
4) General factory = 600000/24000 = 25 per labour hour
5) Overhead assigned
| Product D | Product R | |
| Machining | 14000*20 = 280000 | 6000*20 = 120000 |
| Machine setup | 500*100 = 50000 | 500*300 = 150000 |
| Product design | 84000*1 = 84000 | 84000*1 = 84000 |
| General factory | 25*16000 = 400000 | 25*8000 = 200000 |
| Total overhead assigned | 814000 | 554000 |
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