Q2TI Question:聽Newton Company has an... [FREE SOLUTION]

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Chapter 19: Q2TI (page 1042)

Question:Newton Company has analyzed its production process and identified two primary activities. These activities, their allocation bases, and their estimated costs are listed below.
Activity
Allocation Base
Estimated Activity
Estimated Costs
Purchasing
Number of purchase orders
200 purchase orders
$ 10,000
Materials Handling
Number of parts
15,000 parts
$ 7,500
The company manufactures two products: Regular and Super. The products use the following resources in March:
Regular Super
Number of purchase orders 5 purchase orders 7 purchase orders
Number of parts 600 parts 750 parts
5. Compute the predetermined overhead allocation rates using activity-based costing.
6. Determine the amount of overhead allocated to Regular products in March.
7. Determine the amount of overhead allocated to Super products in March.

Short Answer

Expert verified

Predetermined overhead allocation rate

For Purchasing cost:$50

For Material handling cost:$0.5

Overhead cost for Regular Product:$550

Overhead cost for Super Product:$725

Step by step solution

Step-by-Step-SolutionStep1: Computation of predetermined overhead allocation rate

$P u r c h a i n g c o s t r a t e = \frac{E s t i m a t e d C o s t}{N o . o f p u r c h a s e o r d e r s} = \frac{$ 10, 000}{200} = $ 50 M a c h i n e h a n d l i n g r a t e = \frac{E s t i m a t e d C o s t}{N o . o f p a r t s} = \frac{$ 7, 500}{15, 000} = $ 0.5$

Overhead cost for regular product

$P u r c h a s i n g c o s t = P r e d e t e r m i n e d o v e r h e a d a l l o c a t i o n r a t e 脳 N o . o f p u r c h a s e o r d e r s = $ 50 脳 5 = $ 250 M a t e r i a l h a n d l i n g c o s t = P r e d e t e r m i n e d o v e r h e a d a l l o c a t i o n r a t e 脳 N o . o f p a r t s = $ 0.5 脳 600 = $ 300 T o t a l O v e r h e a d c o s t = P u r c h a s i n g c o s t + M a t e r i a l h a n d l i n g c o s t = $ 250 + 300 = $ 550$

Overhead cost for super product

$P u r c h a s i n g c o s t = P r e d e t e r m i n e d o v e r h e a d a l l o c a t i o n r a t e 脳 N o . o f p u r c h a s e o r d e r s = $ 50 脳 7 = $ 350 M a t e r i a l h a n d l i n g c o s t = P r e d e t e r m i n e d o v e r h e a d a l l o c a t i o n r a t e 脳 N o . o f p a r t s = $ 0.5 脳 750 = $ 375 T o t a l O v e r h e a d c o s t = P u r c h a s i n g c o s t + M a t e r i a l h a n d l i n g c o s t = $ 350 + 375 = $ 725$

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Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 230,000	Number of parts	\)1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

Product	Total Units Produced	Total Direct materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours

Standard bookcase	3,000	\(54,000	\)67,500	9,000	4,500
Unfinished bookcase	3,500	56,000	52,500	7,000	3,500

Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 240,000	Number of parts	\)1.00
Assembly	3,500,000	Number of assembling direct labor hours	17.00
Finishing	190,000	Number of finished units*	4.50

Product	Total Units Produced	Total Direct materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours

Standard bookcase	7,000	\(91,000	\)105,000	28,000	10,500
Unfinished bookcase	7,500	82,500	75,000	22,500	7,500

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Short Answer

Step by step solution

Step-by-Step-SolutionStep1: Computation of predetermined overhead allocation rate

Overhead cost for regular product

Overhead cost for super product

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Activity	Allocation Base	Estimated Activity	Estimated Costs
Purchasing	Number of purchase orders	200 purchase orders	\( 10,000
Materials Handling	Number of parts	15,000 parts	\) 7,500