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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 lanyardsNumber of machine set ups $12000 16 12Number of inspections $800 12 8Number 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
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