Reference no: EM132655905

Question - Mannheim Corporation manufactures small camping tents and family camping tents. Estimated direct labor time to produce each type of tent is as follows:

Small Family

Estimated tents produced 25,000 10,000

Direct labor hours per tent 2 5

Estimated overhead for the period = 1,200,000 SAR.

1. Compute the overhead cost assigned to each type of tent assuming direct labor hours are used to allocate overhead costs.

The controller is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the family tent product line because of its complexity. He therefore developed the following three activity cost pools and related cost drivers to better understand the costs.

Activity Cost Pools Expected Use of Cost Drivers Estimated Overhead Costs (SAR)

Setting up machines 1,000 setups 220,000

Assembling 90,000 labor hours 990,000

Inspection 1,200 inspections 240,000

2. Calculate the activity-based overhead rates for these three cost pools.

3. Compute the cost that is assigned to each bicycle product line using activity-based costing system, given the following information.

Expected Use of Cost Drivers per Product

Small Family

Number of setups 150 850

Direct labor hours 30,000 60,000

Number of inspections 100 1,100

4. What do you believe the controller should do? Why?