Your company has established the following data relating to activity cost pools,

Question

Your company has established the following data relating to activity cost pools, cost drivers and costs for the coming year: Activity Cost Drivers Total activity cost for year Budgeted level of cost driver for year Machine set-ups No. of set-ups $200 000 100 set-ups Material handling Weight of raw materials $100 000 50 000 pounds Hazardous waste control Weight of hazardous chemicals $ 50 000 10 000 pounds Quality control No. of inspections $ 70 000 1000 inspections Other overhead costs No. of machine hours $200 000 20 000 machine hours
Budgeted overhead costs for the year equal the sum total of the activity costs shown in the table above.
One order for 1000 boxes of film development chemicals has the following production requirements: Machine set-ups 4 set-ups Raw materials 10 000 pounds Hazardous materials 2000 pounds Inspections 10 inspections Machine hours 500 machine hours
Assuming the company decides to adopt ABC to apply overheads to products, the amount of overhead cost to be allocated to one order of 1000 boxes will be: Your company has established the following data relating to activity cost pools, cost drivers and costs for the coming year: Activity Cost Drivers Total activity cost for year Budgeted level of cost driver for year Machine set-ups No. of set-ups $200 000 100 set-ups Material handling Weight of raw materials $100 000 50 000 pounds Hazardous waste control Weight of hazardous chemicals $ 50 000 10 000 pounds Quality control No. of inspections $ 70 000 1000 inspections Other overhead costs No. of machine hours $200 000 20 000 machine hours
Budgeted overhead costs for the year equal the sum total of the activity costs shown in the table above.
One order for 1000 boxes of film development chemicals has the following production requirements: Machine set-ups 4 set-ups Raw materials 10 000 pounds Hazardous materials 2000 pounds Inspections 10 inspections Machine hours 500 machine hours
Assuming the company decides to adopt ABC to apply overheads to products, the amount of overhead cost to be allocated to one order of 1000 boxes will be:

Explanation / Answer

Over head cost

Over head cost per box Cost perset-ups ($200 000 / 100) $2,000 Weight of raw materials ($100 000 /50,000) $2 per pound Weight of hazardous chemicals ($50,000 / 10,000) $5 per pound inspections (70,000 / 1000) $70 per inspection Other overhead costs ($200,000 / 20,000) $10 per machine hr

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