Reference no: EM133011789

Sandy's been given makes two different products sold to local sports clubs curtain: baseball caps and lanyards. Products come in several different colors. Overhead costs are currently allocated based on direct labour hours. During the year the company produced 2000 caps and 1500 lanyards. To produce one Take 0.4 direct labour hours and to produce one lanyard it takes 0.1 draft labour hours. The owner Sandy has identified other activities that also drive cost and would like to change to an activity-based caustic system.

She's collected the following information:

Cost driver                           Total cost of activity                Cost driver volume caps                   Cost driver volume lanyards
Number of machine set ups             $12000                                    16                                            12
Number of inspections                      $800                                     12                                              8
Number of shipments                      $10000                                    80                                            60

Required:

Problem 1. Compute the amount of overhead to be allocated to each product using the traditional allocation method based on the direct labour hours

Problem 2. Compute the amount of overhead to be allocated to each product using the activity-based information in the table