Xie Company identified the following activities, costs, and activity drivers for

Question

Xie Company identified the following activities, costs, and activity drivers for 2017. The company manufactures two types of go-karts: Deluxe and Basic.

   
Required:
1. Compute a single plantwide overhead rate, assuming that the company assigns overhead based on 125,000 budgeted direct labor hours.
2. In January 2017, the Deluxe model required 2,500 direct labor hours and the basic model required 6,000 direct labor hours. Assign overhead costs to each model using the single plantwide overhead rate.

Activity Expected Costs Expected Activity Handling materials $ 625,000 100,000 parts Inspecting product 900,000 1,500 batches Processing purchase orders 105,000 700 orders Paying suppliers 175,000 500 invoices Insuring the factory 300,000 40,000 square feet Designing packaging 75,000 2 models

Explanation / Answer

1. single plantwide overhead rate = Total Expected Costs / Total budgeted direct labor hours

= $ 2,180,000 / 125,000 Hours

= $ 17.44 per direct labor hour.

Hence the correct answer is $ 17.44

2. Overhead costs assigned to  Deluxe model = single plantwide overhead rate * Total direct labor hours for the Deluxe model

= $ 17.44 * 2,500 direct labor hours

= $ 43,600

Overhead costs assigned to  Basic model = single plantwide overhead rate * Total direct labor hours for the Basic model

= $ 17.44 * 6,000 direct labor hours

= $ 104,640

Hence the correct answer is $43,600  and $ 104,600

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