Calculate the separate predetermined overhead rates

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Reference no: EM131790742

Problem - The new president of the Wernecke Company was stumped. Why had profits gone down? He had directed the sales department to push the product with the highest contribution margin, and the sales department had come through with flying colors. The percent of flams sold had increased from 25% of units sold to 37.5% of units sold. So what happened?

Flims

Flams

Sales Price per Unit

$150

$500

Direct Materials per Unit

$75

$200

Direct Labor Cost per Hour

$25

$25

Direct Labor Hours per Unit

1 hour per unit

5 hours per unit

Number of Units Produced

25,000

15,000

The variable overhead for the coming year is estimated to be $3,000,000.

Required:

It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming year.

Activity Cost Pool

Estimated Overhead Cost

Expected Activity Level

Setups

$850,000

200 setups

Scrap

$350,000

500 units

Testing

$200,000

5,000 tests

Machine related

$1,600,000

100,000 Mhrs

    Total

$3,000,000

 

Calculate the separate predetermined overhead rates for each of the activities listed above.

NOTE: It is expected that this problem will be completed using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab.

Reference no: EM131790742

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