6. (30 points) Foster Company manufactures two products (X and Y). The direct ma

Question

6. (30 points) Foster Company manufactures two products (X and Y). The direct materials and direct labor costs assigned to each product are:

X Y

Direct Materials $50,000 $40,000

Direct Labor 40,000 10,000

The overhead costs ($146,000 in total) have been divided into four cost pools that use the following activity drivers:

Number Number Number

of of of Labor Labor

Product Orders Setups Transactions Hours

X 60 20 500 2,000

Y 20 80 700 500

Cost per pool $32,000 $26,000 $48,000 $40,000

Required:

a. Compute the allocation rates for each of the activity drivers listed.

b. What are the total product costs assigned to products X and Y assuming that activity-based costing is being used to allocate overhead costs?

c. Compute the plant-wide overhead rate using labor hours.

d. What are the total product costs assigned to products X and Y assuming that the plant-wide overhead rate calculated in part (c) is used for allocating the overhead costs?

Explanation / Answer

Answer :-

a) Computation of allocation rates for each of the activity drivers listed:-

B) Total product cost assuming that activity based costing is being used to allocate overhead cost:-

Total cost of X & Y

C) Computation of overhead rate using labour hours:-

Labour Hours X 2000hrs Y 500 hrs Total hours = 2500 hrs

Overhead cost = 146000

overhead allocation rate = 146000/2500 = $58.4

Overhead cost :-

X 116,800 (2000*58.4)

Y 29,200 (500*58.4)

Total 146,000

d) Total product cost assigned to X and Y assuming that plant wide overhead rate is being used to allocate overhead cost:-

Activity Drivers Cost ($) (A) (B) C = A/B ($) Product 32000 80 (60+20) 400 Orders 26000 100 (20+80) 260 Set ups 48000 1200 (500+700) 40 Transaction hrs 40000 2500 (2000+500) 16 Total 146000

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