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Exercise - Computing overhead rates based on different costing drivers
Fenya Industries produces two surge protectors: K2761 with six outlets and D3354 with eight outlets and two telephone line connections. Because of these product differences, the company plans to use activity-based costing to allocate overhead costs. The company has identified four activity pools.
Activity Pools
Cost Pool Total
Cost Driver
Machine setup
$144,000
Number of setups
Machine operation
360,000
Number of machine hours
Quality control
57,600
Number of inspections
Packaging
38,400
Number of units
Total overhead cost
$600,000
Expected activity for each product follows:
K2761
48
1,400
78
25,000
D3354
72
2,600
172
15,000
Total
120
4,000
250
40,000
Required
a. Compute the overhead rate for each activity pool.
b. Determine the overhead cost allocated to each product.
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