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Compute the overhead rates using the activity-based costing
Course:- Cost Accounting
Reference No.:- EM131146079




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BE4-7 Spud, Inc. a manufacturer of gourmet potato chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2017.

Activity Cost Pools

Estimated Overhead

Expected Use of Cost Drivers per Activity

Ordering and receiving

$84,000

12,000 orders

Food processing

180,000

60,000 machine hours

Packaging

1,760,000

440,000 labor hours

For 2017, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000, What is the total overhead applied?

BE4-12 Spin Cycle Architecture uses three activity pools to apply overhead to its projects. Each activity has a cost driver used to allocate the overhead costs to the projects. The activities and related overhead costs arc as follows: initial concept formation $40,000, design $300,000, and construction oversight $100,000. The cost drivers and expected use are as follows.

Activities

Cost Drivers

Expected Use of Cost Drivers per Activity

Initial concept formation

Number of project changes

20

Design

Square feet

150,000

Construction oversight

Number of months

100

(a) Compute the predetermined overhead rate for each activity. (b) Classify each of these activities as unit-level, batch-level, product-level, or facility-level.

E4-1 Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company's operations.

 

Standard

Custom

Direct labor costs

$50,000

$100,000

Machine hours

1 MOO

1,000

Setup hours

100

400

Total estimated overhead costs are $240,000, Overhead cost allocated to the machining activity cost pool is $140,000, and $100,000 is allocated to the machine setup activity cost pool.

Instructions

(a) Compute the overhead rate using the traditional (plantwide) approach.

(b) Compute the overhead rates using the activity-based costing approach. (0 Determine the difference in allocation bet een the two approaches.

E4-5 Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first qua.rter's operations.

Machine setup, indirect materials

$ 4,000

Inspections

16,000

Tests

4,000

Insurance, plant

110,000

Engineering design

140,000

Depreciation. machinery

520,000

Machine setup, indirect labor

20,000

Property taxes

29,000

Oil, heating

19,000

Electricity„ plant lighting

21,000

Engineering prototypes

60,000

Depreciation, plant

210,000

Electricity„ machinery

36,000

Machine maintenance wages

19,000

Instructions

Classify the above costs of Santana Corporation into activity cost pools using the follow ing: engineering, machinery, machine setup, quality control, factory utilities, mainte¬nance. Next, identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.

E4-14 Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year.

 

Commercial

Residential

Revenues

 

$300,000

 

$480,000

Direct materials costs

$ 30,000

 

$ 50,000

 

Direct labor costs

100,000

 

300,000

 

Overhead costs

85,000

215,000

150,000

500,000

Operating income (loss)

 

$ 85,000

 

($ 20,000)

The controller, Peggy Kingman, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. 1-lere are the three activity cost pools and related information she developed:




Activity Cost Pools

Estimated Overhead

Cost Drivers

Scheduling and travel

$85,000

Hours of travel

Setup time

90,000

Number of setups

Supervision

60,000

Direct labor cost

Expected Use of Cost Drivers per Product


Commercial

Residential

Scheduling and travel

750

500

Setup time

350

250

Instructions

(a) Compute the activity-based overhead rates for each of the three cost pools, and deter-mine the overhead cost assigned to each product line.

(b) Compute the operating income for each product line, using the activity-based over¬head rates.

(c) What do you believe Peggy Kingman should do?




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