Question

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based
costing system contains the following six activity cost pools and activity rates:

  

Activity Cost Pool	Activity Rates
Supporting direct labor		$11.00	per direct labor-hour
Machine processing		$4.00	per machine-hour
Machine setups		$40.00	per setup
Production orders		$160.00	per order
Shipments		$125.00	per shipment
Product sustaining		$850.00	per product

  

Activity data have been supplied for the following two products:

  

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	975	40
Machine-hours	2,600	30
Machine setups	9	1
Production orders	9	1
Shipments	18	1
Product sustaining	1	1

  

Required:

Determine the total overhead cost that would be assigned to each of the products listed above in the activity-based costing system.

Answer 1

Statement of total overhead cost

Overhead	Rate	Activity in K425	Activity in M67	Cost in K425	Cost in M67
Direct Labor	11	975	40	10725	440
Machine processing cost	4	2600	30	10400	120
Machine set up Cost	40	9	1	360	40
Production order Cost	160	9	1	1440	160
Shipment Cost	125	18	1	2250	125
Product sustaining Cost	850	1	1	850	850
Total overhead cost assigned to each product				26025	1735
Unit produce				200	2000
Cost Per Unit				130.13	0.87

Cost has been calcualted on Multiplying rate of activity to activity used in product, per lobour hour rate is $ 11 and hour used in 975 in Product 1 so total cost is $ 10725(11*975).

Total overhead cost assigned to Product K425 is $ 26025 and Product M67 is $ 1735