Compute the pool rates for the different activities
Course:- Managerial Accounting
Reference No.:- EM13449

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1.      Ernest, Inc. has identified the following overhead costs and cost drivers for next year:
Overhead Item    Expected Cost                  Cost Driver          Quantity Activity rate
Setup costs              $320,000 Number of setups 4,000  
Ordering costs           120,000 Number of orders 15,000  
Maintenance 480,000 Machine hours 125,000  
Power 40,000 Kilowatt hours 200,000  
Total overhead        $960,000      

The following are two of the jobs completed during the year:

  Job 320 Job 321

Direct materials  $                19,200  $                      24,000
Overhead costs
Direct labor  $                24,000  $                      30,000   Job 320  Job 321 
      Setup costs                 
Units completed                      1,600                             2,000 Ordering costs              
Number of setups                                   12                                   10 Power    
Number of orders                                   20                                   30 Total                               -                         -  
Machine hours                                400                                600

Kilowatt hours                                280                                350


1.   Complete the schedule above to compute the pool rates for the different activities.
2a.  Compute the total job costs assigned to the each of the two jobs using the information provided.  Assign overhead using the pool rates calculated in "a" above.  
  Job 320 Job 321

Direct materials    

Direct labor    

Overhead costs    

Total costs assigned    

2b.  Compute the unit cost for the two jobs.

Total Costs Assigned                                    -                                      -  

Number of Units                             1,600                             2,000

Cost Per Unit  $                               -    $                               -  


3.  Assume instead of using ABC costing, the company used a traditional costing method that assigns overhead using a predetermined rate based on machine hours.  Based on the original numbers, total overhead for the year is $960,000 and the total estimated machine hours are 125,000.
a.  Compute the predetermined rate using the information in item 3.



b.  Compute the total cost assigned to jobs 320 and 321 by substituting the traditional overhead for the ABC overhead that you computed in 2 above
Overhead assigned Hours Rate Total

 Job 320                                 400    

 Job 321                                 600    

   Job 320   Job 321 

 Direct materials     

 Direct labor     

Overhead costs    

Total costs assigned                                    -                                      -  

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