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Compute the overhead rate for each cost driver
Course:- Finance Basics
Reference No.:- EM131146663




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The Chinese Teapot Company manufactures plastic and ceramic teapots. The company's western plant has changed from a labor-intensive operation to a robotics environment. As a result, management is considering changing from a direct-labor based overhead rate to an activity-based cost method. The controller has chosen the following activity cost pools and cost drivers for the factory overhead:

Expected

Overhead

Cost 

Cost Driver 

Annual

Cost Driver

Purchase orders $300,000 Number of orders 15,000 orders Set-up costs $200,000 Number of set-ups 5,000 set-ups Testing costs $320,000 Number of tests 8,000 tests Machine maintenance $500,000 Machine hours 25,000 hours 

REQUIRED:

a. Compute the overhead rate for each cost driver.

b. An order for 50 ceramic teapots had the following requirements:

Number of purchase orders .... 3

Number of set-ups ....... 20

Number of product tests ...... 7Machine hours .......... 150

How much overhead would be assigned to this order?




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