Question

Spud, Inc. a manufacturer of gourmet potato chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2020.

Activity Cost Pools Estimated Overhead Estimated Use of Cost Drivers per Activity Ordering and receiving$94,72012,800 orders Food processing 492,00060,000 machine hours Packaging 1,695,450445,000 labor hours For 2020, the company had 11,800 orders and used 51,100 machine hours, and labor hours totaled 497,000.
Calculate the overhead rates for each activity. (Round answers to 2 decimal places, e.g. 12.25.)
Overhead Rates
Ordering and receiving
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per order
Food processing
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per machine hour
Packaging
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per labor hour
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Spud, Inc. a manufacturer of gourmet potato chips,
Spud, Inc. a manufacturer of gourmet potato chips,
What is the total overhead applied?
Total overhead applied
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Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year.
Budgeted
Actual
Overhead cost $975,000 $950,000
Machine hours 50,000 45,000
Direct labor hours 100,000 92,000
Overhead is applied on the basis of direct labor hours.
Spud, Inc. a manufacturer of gourmet potato chips,
Spud, Inc. a manufacturer of gourmet potato chips,
Compute the predetermined overhead rate. (Round answer to 2 decimal places, e.g. 12.25.)
Predetermined overhead rate
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per direct labor hour
LINK TO TEXT
Spud, Inc. a manufacturer of gourmet potato chips,
Spud, Inc. a manufacturer of gourmet potato chips,
Determine the amount of overhead applied for the year.
Amount of overhead applied
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Morgana Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $150,000, $375,000, and $87,500, respectively. The cost driver for each activity and the expected annual usage are number of setups 2,500, machine hours 25,000, and number of inspections 1,750.
Compute the overhead rate for each activity.
Machine setups
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per setup
Machining
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per machine hour
Inspections
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per inspection

Answer 1

a. Spud, Inc.

1. Overhead rates:

Ordering and receiving $7.40 ($94,720/12,800) per order

Food processing $8.20 (492,000/60,000)per machine hour

Packaging $3.81 (1,695,450/445,000) labor hour

2. Total overhead applied = $2,399,890

b. Digger Inc.

Overhead rate = $9.75 per DLH

Total overhead cost applied = $897,000

c. Morgana Company

Overhead rates:

Machine setups $60 ($150,000/2,500) per setup

Machining $15 ($375,000/25,000) per machine hour

Inspections $50 ($87,500/1,750) per inspection

Step-by-step explanation:

a) Data and Calculations:

Spud, Inc. budgeted data:

Activity Cost Pools Estimated Estimated Use of Cost Drivers

Overhead per Activity

Ordering and receiving $94,720 12,800 orders

Food processing 492,000 60,000 machine hours

Packaging 1,695,450 445,000 labor hours

Actual data:

Actual orders = 11,800

Machine hours = 51,100

Labor hours = 497,000

Overhead rates for each activity:

Ordering and receiving $94,720/12,800 = $7.40 per order

Food processing 492,000/60,000 = $8.20 per machine hour

Packaging 1,695,450/445,000 = $3.81 labor hour

Actual data:

Actual orders = 11,800 * $7.40 = $87,320

Machine hours = 51,100 * $8.20 = 419,020

Labor hours = 497,000 * $3.81 = 1,893,570

Total overhead applied = $2,399,890

Digger Inc:

Budgeted Actual

Overhead cost $975,000 $950,000

Machine hours 50,000 45,000

Direct labor hours 100,000 92,000

Overhead is applied on the basis of direct labor hours

Overhead rate = $975,000/100,000 = $9.75 per DLH

Total overhead cost applied = $897,000 (92,000 * $9.75)

Morgana Company:

Activity Cost Pool Estimated Overhead Cost Driver

Machine setups $150,000 2,500 number of setups

Machining 375,000 25,000 machine hours

Inspections 87,500 1,750 number of inspections

Overhead rates:

Machine setups $60 ($150,000/2,500) per setup

Machining $15 ($375,000/25,000) per machine hour

Inspections $50 ($87,500/1,750) per inspection