Question

Plata Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity		Expected Cost		Activity Driver		Activity Capacity
Setting up equipment		$120,000		Number of setups		300
Ordering costs		90,000		Number of orders		9,000
Machine costs		210,000		Machine hours		21,000

Plata produces two models of microwave ovens with the following activity demands:

		Model X		Model Y
Units completed		8,000		4,000
Number of setups		200		100
Number of orders		3,000		6,000
Machine hours		12,000		9,000

The company's normal activity is 21,000 machine hours.

Calculate the total overhead cost that would be assigned to Model X using an activity-based costing system:

Answer 1

The correct answer is $ 2,30,000

Note :

1. Activity Rate:

Activity	Expected Cost	Activity Driver	Activity Capacity	Activity Rate ( Expected Cost / Activity Capacity)
Setting up equipment	1,20,000	Number of setups	300	400
Ordering costs	90,000	Number of orders	9,000	10
Machine costs	2,10,000	Machine hours	21,000	10

2. Overhead:

Activity	Activity Rate ( Expected Cost / Activity Capacity)	Activity Driver	Model X Activity	Overhead ( Activity Rate * Activity)
Setting up equipment	400	Number of setups	200	80,000
Ordering costs	10	Number of orders	3,000	30,000
Machine costs	10	Machine hours	12,000	1,20,000
				2,30,000