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Chapter 19: Q.19-1SE_2 (page 1063)

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.

Requirements

2. Determine the amount of overhead allocated in October.

Short Answer

Expert verified

Overhead in October is $45,000.

Step by step solution

01

Overhead cost.

Overhead costs are the indirect costs that are incurred in the production or non-production activities. Indirect costs are not directly involved in the process but help to make the process efficient. Due to this reason, these costs cannot be directly attributed to any product or service.

Overheads are reallocated based on some to get the idea of the per-unit cost and total cost of any product or service.

02

Overhead allocation in October

Octoberoverhead=predetermineoverheadallocationrate脳allocationbaseforoctober=$2.25脳20,000=$45,000

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Most popular questions from this chapter

Darby Corp. is considering the use of activity-based costing. The following information is provided for the production of two product lines:

Activity Cost Allocation Base

Setup \( 105,000 Number of setups

Machine maintenance 60,000 Number of machine hours

Total indirect manufacturing costs \) 165,000

Product A Product B Total

Direct labor hours 7,000 5,000 12,000

Number of setups 30 170 200

Number of machine hours 1,600 2,400 4,000

Darby plans to produce 375 units of Product A and 250 units of Product B. Compute the ABC indirect manufacturing cost per unit for each product.

The Oakman Company (see Short Exercise S19-1) has refined its allocation system by separating manufacturing overhead costs into two cost pools鈥攐ne for each department. The estimated costs for the Mixing Department, \(510,000, will be allocated based on direct labor hours, and the estimated direct labor hours for the year are 170,000. The estimated costs for the Packaging Department, \)300,000, will be allocated based on machine hours, and the estimated machine hours for the year are 40,000. In October, the company incurred 38,000 direct labor hours in the Mixing Department and 10,000 machine hours in the Packaging Department.

Requirements

1. Compute the predetermined overhead allocation rates. Round to two decimal places.

Harcourt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 96,000 Number of kilos 24,000 kilos

Packaging 210,000 Number of machine hours 3,000 hours

Quality assurance 114,000 Number of samples 1,900 samples

Total indirect costs \) 420,000

Other production information includes the following:

Commercial Containers Travel Packs

Units produced 2,800 containers 51,000 packs

Weight in kilos 9,800 5,100

Machine hours 1,960 510

Number of samples 560 765

Requirements

1. Harcourt鈥檚 original single plantwide overhead allocation rate system allocated indirect costs to products at $140.00 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product. Round to two decimal places.

Clancy鈥檚 Carpet Cleaning Services uses ABC to allocate overhead costs and has computed the following predetermined overhead allocation rates:

Activity Allocation Base Allocation Rate

Supplies Number of square feet \( 0.05 per square foot

Travel Number of customer sites \) 20.00 per site

Clancy cleans the carpets for an apartment management firm. When a renter moves out, the apartment management firm contacts Clancy to clean the carpets in preparation for a new tenant. During the past month, Clancy cleaned the carpets of 23 apartments with 1,200 square feet each. What amount of indirect costs should Clancy allocate to the apartment firm for the month?

Why are some quality costs hard to measure?
See all solutions

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