Question

Flynn Industries has three activity cost pools and two products. It expects to produce 3,000 units of Product BC113 and 1,500 of Product AD908. Having identified its activity cost pools and the cost drivers for each pool, Flynn accumulated the following data relative to those activity cost pools and cost drivers.

Estimated Expected Use of Cost Product Product
Activity Cost Pool Cost Drivers Overhead Drivers per Activity BC113 AD908
Machine setup Setups $16,000 40 25 15
Machining Machine hours 110,000 5,000 1,000 4,000
Packing Orders 30,000 500 150 350
Using the above data, do the following:
(a) Prepare a schedule showing the computations of the activity-based overhead rates per cost driver.
(b) Prepare a schedule assigning each activity's overhead cost to the two products.
(c) Compute the overhead cost per unit for each product. (Round to nearest cent.)
(d) Comment on the comparative overhead cost per product.

Answer 1

Flynn Industries

a) Schedule of Activity-based Overhead Rates per Cost Driver:

Machine setup $16,000/40 = $400 per machine setup

Machining $110,000/5,000 = $22 per machine hour

Packing $30,000/500 = $60 per order

b) A Schedule Assigning Activities Overhead Cost to the Products:

Product Product

BC113 AD908

Cost Pool Overhead Rate Usage Costs Usage Costs

Machine setup $400/m.setup 25 = $10,000 15 = $6,000

Machining $22/mhour 1,000 = 22,000 4,000 = 88,000

Packing $60/order 150 = 9,000 350 = 21,000

Total overhead allocated $41,000 $115,000

c) Computation of the Overhead Cost per unit:

Product Product

BC113 AD908

Total overhead allocated $41,000 $115,000

Expected units to be produced 3,000 1,500

Overhead cost per unit $13.67 $76.67

d) A close look at the overhead cost per product shows that Product AD908 causes more activities in machining and packing and also is allocated more overhead costs accordingly. On the other hand, Product BC113 uses machine setup and has got higher machine setup cost assigned to it.

Step-by-step explanation:

a) Data and Calculations:

Activity Cost Cost Estimated Expected Use of Cost Product Product

Pool Drivers Overhead Drivers per Activity BC113 AD908

Machine

setup Setups $16,000 40 25 15

Machining Machine

hours 110,000 5,000 1,000 4,000

Packing Orders 30,000 500 150 350