Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Dining Chairs - Tables - Total cost
Machine setups: 200 - 600 - $48,000
Inspections: 250 - 470 - $72,000
Labor hours: 2,600 - 2,400
A) A single overhead rate:
To calculate the estimated manufacturing overhead rate we need to use the following formula:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= (48,000 + 72,000) / (2,600 + 2,400)= $24 per direct labor hour
Now, we can allocate overhead based on direct labor hours:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Dining Chairs:
Allocated MOH= 24*2,600= $62,400
Tables:
Allocated MOH= 24*2,400= $57,600
B) We have to calculate an overhead rate for each activity cost pool.
Overhead rate:
Machine setups:
Estimated manufacturing overhead rate= 48,000/800= $60 per machine hour set up
Inspections:
Estimated manufacturing overhead rate= 72,000/ 720= $100 per inspection
Based on the overhead rate, we can allocate overhead to each product.
Dining chairs:
Allocated MOH= 60* 200 + 100*250= $37,000
Tables:
Allocated MOH= 60*600 + 100*470= $83,000
C) We can conclude that activity cost allocation is more accurate than using a single rate plant-wide. We can allocate costs more efficiently.
The total machine setups and inspection costs assigned to each product, using a single overhead rate and activity-based costing are:
a. Single overhead rate:
First step is to compute the single overhead rate
Using this formula
Single overhead rate = Total overhead cost/Direct labor hours
Where:
Total overhead cost = $48,000 + $72,000
Total overhead cost = $120,000
Direct labor hours = 2,600 + 2,400
Direct labor hours = 5,000
Let plug in the formula
Single overhead rate = $120,000/5,000
Single overhead rate= $24 per DLH
Now let determine the total machine setups and inspection costs assigned to each product
Assigned costs to Dining Chairs
Using this formula
Assigned overhead cost = Single overhead rate x Direct labor hours used
Let plug in the formula
Assigned overhead cost = $24 x 2,600
Assigned overhead cost=$62,400
Assigned costs to Tables
Assigned overhead cost = $24 x 2,400
Assigned overhead cost= $57,600
b. Activity based costing:
First step is to compute the activity rates:
Using this formula
Activity rate = Total cost/Usage
Let plug in the formula
Machine setups=$48,000÷800 setups
(200 + 600=800)
Machine setups=$60 per setup
Inspections=$72,000÷720 inspections
(250 + 470=720)
Inspections=$100 per inspection
Now let compute the total machine setups and inspection costs assigned to each product
Dining Chairs
Machine Setups=$60 per machine setup×200 setups
Machine Setups=$12,000
Inspections=$100 per inspection×250 inspections
Inspections=$25,000
Total=$12,000+$25,000
Total=$37,000
Tables
Machine Setups=$60 per machine setup×600
Machine Setups=$36,000
Inspection=$100 per inspection×470
Inspection=$47,000
Total=$36,000+$47,000
Total=$83,000
c) Based om my findings using activity based costing is more efficient and more accurate compare to using a single overhead rate.
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