Altex Inc. manufactures two products

Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information.

Car        Truck
Estimated wheels produced        40,500        10,000
Direct labor hours per wheel        1        3

Total estimated overhead costs for the two product lines are $776,000.

Calculate overhead rate. (Round answer to 2 decimal places, e.g. 12.25.)
Overhead rate

Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. (Round answers to 0 decimal places, e.g. 1,575.)

Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

Activity Cost Pools        Expected Use of
Cost Drivers        Estimated Overhead
Costs
Setting up machines        1,000     setups        $216,000
Assembling        70,500     labor hours        274,000
Inspection        1,200     inspections        286,000

Compute the activity-based overhead rates for these three cost pools. (Round answers to 2 decimal places, e.g. 12.25.)

Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information. (Round answers to 0 decimal places, e.g. 1,575.)

Expected Use of Cost Drivers per Product
Car        Truck
Number of setups        200        800
Direct labor hours        40,500        30,000
Number of inspections        100        1,100

Here’s the SOLUTION

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