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.
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.)
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
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
Number of setups 200 800
Direct labor hours 40,500 30,000
Number of inspections 100 1,100