Question

The following is taken from Ronda Co.'s internal records of its factory with two production departments. The cost driver for indirect labor and supplies is direct labor costs, and the cost driver for the remaining overhead items is number of hours of machine use. Direct Labor Machine Use HoursOperating department 1 $ 18,800 2,000Operating department 2 13,200 1,200Totals $32,000 3,200Factory overhead costs:Rent and utilities $12,200Indirect labor 5,400General office expense 4,000Depreciation-Equipment 3,000Supplies 2,600Total factory overhead $27,200Compute the total amount of overhead cost allocated to Operating Department 1 using activity-based costing.

Answer 1

Total Department 1 Cost $16,700

Step-by-step explanation:

Lets summarize the information,

Department 1

Direct labor hours = 18,800

Machine hours = 2000

Department 2

Direct labor hours = 13,200

Machine hours = 1200

Indirect labor and supplies allocated as per direct labor hours

Remaining overheads allocated as per machine hours

Indirect labor = 5400 = 5400 / (18800+13200) = 0.17/hour

Supplies = 2600 = 2600 / (18800 + 13200) = 0.08/hour

(cost divided by total labor hours available)

Rent and utilities = 12,200 = 12200 / (2000 + 1200) = 3.81/ machine hr

General office expense = 4000 = 4000 / (2000 + 1200) = 1.25/machine hr

Depreciation = 3000 = 3000 / (2000 + 1200) = 0.94/machine hr

(cost divided by total machine hours)

Total share of cost for Department 1

(per hour costs * hours used in department as per cost drivers)

Indirect labor (0.17 * 18,800) 3196

Supplies (0.08 * 18,800) 1504

Rent and utilities (3.81 * 2000) 7620

General office expense (1.25 * 2000) 2500

Depreciation (0.94 * 2000) 1880

Total Department 1 Cost $16,700

Hope that helps.