Exercise 3 Fischer Company identified the following activities, costs, and activ

Question

Exercise 3 Fischer Company identified the following activities, costs, and activity drivers: Expected Costs Expected Activity Activity Handling parts Inspecting product Processing purchase orders Designing packaging $425,000 S390,000 $220,000 $230,000 940 batches 440 orders 5 models a. Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals) b. Compute separate rates for each of the four activities using the activity-based costing.

Explanation / Answer

a. Plantwide Overhead Rate = Total Expected Costs / Total Direct Labor Hours

= $( 425,000+ 390,000 + 220,000 + 230,000) / 70,000 direct labor hours

= $ 1,265,000 / 70,000

= $ 18.07 per direct labor hour.

Hence the correct answer is $ 18.07 per direct labor hour.

b.

Note : The answer is roudned off to two decimal places.

Activity Expected Costs Expected Activity Activity Rate ( Expected Costs / Expected Activity ) Handling Parts 4,25,000 25,000 17.00 Inspecting Products 3,90,000 940 414.89 Processing Purchase orders 2,20,000 440 500.00 Designing Packaging 2,30,000 5 46,000.00

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