# of purchase orders $400,000 overhead cost # of shipments $100,000 # of setups

ID: 2350436 • Letter: #

Question

# of purchase orders $400,000 overhead cost

# of shipments $100,000

# of setups $300,000

Direct labor hrs$125,000

# of inspections $75,000

During the year, 1000 purchase orders, 300 shipments, 600 setups, 750 inspections & 10,000 direct labor hours occurred to assemble monitors.

Assume a batch of 200 monitors has the following cost activity:

Purchase order 7

Material shipments 12

Machine setups 2

Direct labor hours50

Inspections 3

1.Determine the overhead allocation for the batch of 200 monitors under the traditional overhead allocation based on direct hours?

2. Overhead allocated for receiving is $3,999.96. Determine overhead allocation for the batch under activity-based costing?

Explanation / Answer

a. total overhead = 400,000 + 100,000 + 300,000 + 75,000 = 875,000

DL hours = 10,000

Overhead rate = 875,000/10,000 = $87.50 per DL hour

Amount allocated to batch of 200 monitors: 50 DL hours*$87.50 per DL hour = $4,375

Answer: $4,375

cost

number

rate

# for monitors

allocation

purchase orders

400,000

1,000

400 per purchase order

2800

shipments

100,000

300

333.33 per shipment

4000

setups

300,000

600

500 per setup

1000

inspections

75,000

750

100 per inspection

300

8100

Answer: $8,100