The following is taken from Ronda Co.\'s internal records of its factory with tw
ID: 2417639 • Letter: T
Question
The following is taken from Ronda Co.'s internal records of its factory with two operating departments. The cost driver for indirect labor and supplies is direct labor costs, and the cost driver for the remaining overhead items is number of hours of machine use.
Direct Labor
Machine Use Hours
Operating department 1
$
18,800
2,000
Operating department 2
13,200
1,200
Totals
$
32,000
3,200
Factory overhead costs
Rent and utilities
$
12,200
Indirect labor
5,400
General office expense
4,000
Depreciation-Equipment
3,000
Supplies
2,600
Total factory overhead
$
27,200
Compute the total amount of overhead cost allocated to Operating Department 1 using activity-based costing. (Do not round intermediate calculations and round activity rate answers to 2 decimal places.)
The following is taken from Ronda Co.'s internal records of its factory with two operating departments. The cost driver for indirect labor and supplies is direct labor costs, and the cost driver for the remaining overhead items is number of hours of machine use.
Direct Labor
Machine Use Hours
Operating department 1
$
18,800
2,000
Operating department 2
13,200
1,200
Totals
$
32,000
3,200
Factory overhead costs
Rent and utilities
$
12,200
Indirect labor
5,400
General office expense
4,000
Depreciation-Equipment
3,000
Supplies
2,600
Total factory overhead
$
27,200
Compute the total amount of overhead cost allocated to Operating Department 1 using activity-based costing. (Do not round intermediate calculations and round activity rate answers to 2 decimal places.)
Explanation / Answer
Answer:
Computation of the total amount of overhead cost allocated to Operating Department 1 using activity-based costing
Particulars
Total Overheads
Cost Allocation Basis (Cost Driver)
Operation Department 1
Rent and utilities
$12,200
Machine Use Hours (2 : 1.2)
$7,625
Indirect labor
$5,400
Direct Labour Cost (18.8 : 13.2)
$3,172.5
General office expense
$4,000
Machine Use Hours (2 : 1.2)
$2,500
Depreciation-Equipment
$3,000
Machine Use Hours (2 : 1.2)
$1,875
Supplies
$2,600
Direct Labour Cost (18.8 : 13.2)
$1,527.5
$27,200
$16,700
Machine Use Hours
2000
Factory Overhead Recovery Rate based on Machine Use Hours = Departments Overhead / Machine Use Hours
$8.35
Working Note -- Computation of total amount of overhead cost allocated to Operating Department 1 & 2
Particulars
Total Overheads
Cost Allocation Basis (Cost Driver)
Operation Department 1
Operation Department 2
Rent and utilities
$12,200
Machine Use Hours (2 : 1.2)
$7,625
$4,575
Indirect labor
$5,400
Direct Labour Cost (18.8 : 13.2)
$3,172.5
$2,227.5
General office expense
$4,000
Machine Use Hours (2 : 1.2)
$2,500
$1,500
Depreciation-Equipment
$3,000
Machine Use Hours (2 : 1.2)
$1,875
$1,125
Supplies
$2,600
Direct Labour Cost (18.8 : 13.2)
$1,527.5
$1,072.5
$27,200
$16,700
$10,500
Machine Use Hours
2000
1200
Factory Overhead Recovery Rate based on Machine Use Hours = Departments Overhead / Machine Use Hours
$8.35
$8.75
Particulars
Total Overheads
Cost Allocation Basis (Cost Driver)
Operation Department 1
Rent and utilities
$12,200
Machine Use Hours (2 : 1.2)
$7,625
Indirect labor
$5,400
Direct Labour Cost (18.8 : 13.2)
$3,172.5
General office expense
$4,000
Machine Use Hours (2 : 1.2)
$2,500
Depreciation-Equipment
$3,000
Machine Use Hours (2 : 1.2)
$1,875
Supplies
$2,600
Direct Labour Cost (18.8 : 13.2)
$1,527.5
$27,200
$16,700
Machine Use Hours
2000
Factory Overhead Recovery Rate based on Machine Use Hours = Departments Overhead / Machine Use Hours
$8.35
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