A company usesan activity based overhead allocation system, with three cost pool

Question

A company usesan activity based overhead allocation system, with three cost pools and drivers. Budgeted costs and drivers information for 2013 are as follows:

                                            Cost pool 1                              Cost pool 2                                Cost pool 3

Budgeted Costs                     103,000                                57,000                                        31,000

Cost Drivers                  

Total                                       156,400                                114,900                                     122,800

Job A                                      83,300                                  63,700                                       76,900

How much overhead was allocated to Job A?

Explanation / Answer

Step 1
Add up the total manufacturing overhead costs. This can be obtained from the company's financial records. Manufacturing overhead includes many different costs. Some costs will vary with production, while others are fixed. Manufacturing overhead includes everything from the cleaner used on the shop floor to depreciation of the lighting fixtures attached to the ceiling.
Step 2
Choose an allocation base. An allocation base is a measure of activity that is used to assign overhead costs to products. Manufacturing overhead costs are divided by the allocation base to determine the amount of manufacturing overhead that should be assigned to each unit of production. Two common allocation bases used in manufacturing are direct labor hours and machine hours.
Step 3
Review payroll or maintenance records to determine the total of the allocation base generated in the current period. For example, the company's payroll records may reflect that 2,000 direct labor hours were worked during the current period.
Step 4
Divide the total allocation base value by the number of units produced to determine the amount of manufacturing overhead attached to each unit of the allocation base. For instance, if the company has $10,000 in overhead and 1,000 direct-labor hours, each direct labor hour will have $10 ($10,000 / 1,000) of overhead attached to it.
Step 5
Monitor production to determine the quantity of the allocation base that is to be assigned to each unit of production. For instance, the analysis may reveal that product A requires one labor hour to produce, while product B requires two labor hours.

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