Rossi Manufacturing has decided to use specific cost pools to allocate its overh

Question

Rossi Manufacturing has decided to use specific cost pools to allocate its overhead costs. Rossi has identified the following information for the current year: Estimated Estimated Allocation Overhead Pool Allocation Base Cost Base Pool 1 - Storage Number of parts $150,000 600,000 Pool 2 - Design Number of production runs $100,000 50 Pool 3 - Production Number of machine hours $250,000 40,000 Pool 4 - Quality Number of components tested $ 75,000 100,000 Pool 5 - Security Number of direct labor hours $180,000 15,000 Based on the information provided, the overhead allocation rate for the pool 3 is: $6.25 $12.50 $1.10 $0.16

Explanation / Answer

Overhead allocation rate for pool 3 = Total Cost of pool 3 / Total activities of pool 3

= 250000/40000 i.e 6.25

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