Pretty Dog Corporation manufactures two models of grooming stations, a standard

Question

Pretty Dog Corporation manufactures two models of grooming stations, a standard and a deluxe model. The following activity and cost information has been compiled:

Number

of Setups

Number of

Components

Number of

Direct Labor Hours

Overhead

costs

Assume a traditional costing system applies the overhead cost based on direct labor hours.

Required:

a. What is the total amount of overhead costs assigned to the standard model?

b. What is the total amount of overhead costs assigned to the deluxe model? Assume an activity-based costing system is used and that the number of setups and the number of components are identified as the activity-cost drivers for overhead.

c. What is the total amount of overhead costs assigned to the standard model?

d. What is the total amount of overhead costs assigned to the deluxe model?

Number

of Setups

Number of

Components

Number of

Direct Labor Hours

Overhead

costs

Explanation / Answer

Req A&B: Pre determined overhead rate based on labour hour = Total Overheads/ Labour hours ( 30,000+50,000 ) /(650+150) = $ 100 per labour hour Standard Deluxe Labour hours 650 150 Overhead cost (@ 100 per labour hour) 65000 15000 Req C&D: Activity rate: Setting up = Total Activity / Number of setups = 30,000 /(3+7) = $ 3,000 per setup Components = total Activity / Number of components = 50,000 /(30+50) = $ 625 per component Standard Deluxe Number of setups 3 7 Number of Components 30 50 Overhead cost : Setting cost(@3000 per setup) 9000 21000 Component cost(@625 per component) 18750 31250 Total Overheads cost 27750 52250

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