Easton Company uses activity-based costing to compute product costs for external

Question

Easton Company uses activity-based costing to compute product costs for external reports. The company has three activity centers and applies overhead using predetermined overhead rates for each activity center. Estimated costs and activities for the current year are presented below for the three activity centers:

Batch Setups Estimated Overhead Cost $ 18,000 and Expected Activity 1500
Material Handling Estimated Overhead Cost $43,400 and Expected Activity 1400
General Factory Estimated Overhead Cost $61,600 and Expected Activity 2200

Actual costs and activities for the current year were as follows:

Batch Setups Actual Overhead Cost $18,740 and Actual Activity 1450
Material Handling Actual Overhead Costs $42,060 and Actual Activity 1400
General Factory Actual Overhead Cost $60,440 and Actual Activity 2180

Required:
How much total overhead was applied to products during the year?

Explanation / Answer

Predetermined overhead rates: Batch setups: $18,000/1500 = $12 per activity Material handling: $43,400/1400 = $31 per activity General factory: $61,600/2200 = $28 per activity Overhead applied: Batch setups: $12 per activity*1450 actual = $17,400 Material handling: $31 per activity*1400 actual = $43,400 General factory: $28 per activity*2180 actual = $61,040 Total = 17,400 + 43,400 + 61,040 = $121,840 Total overhead applied was $121,840. Actual overhead was $18,740 + 42,060 + 60,440 = $121,240. So overhead was overapplied by 121,840 – 121,240 = $600. Answer: Overapplied by $600.

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