Question

Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Suppose that Schell has conducted further research into its overhead and potential cost drivers. As a result, the company has compiled the following detailed information, breaking total overhead into three cost pools:

Activity Cost Pools Cost Driver Cost Assigned to Pool Quantity/Amount Consumed by Standard Floor Mat Line Quantity/Amount Consumed by Deluxe Floor Mat Line
Material handling Number of moves $3,750 30 moves 70 moves
Quality control Number of inspections $13,860 400 inspections 600 inspections
Machine maintenance Number of machine hours $21,450 4,150 machine hours 3,000 machine hours

Required :
a. Calculate the activity rates for each cost pool assuming Schell uses an ABC system.
b. Calculate the amount of overhead that Schell will assign to the Standard floor mat line.
c. Determine the amount of overhead Schell will assign to the Deluxe product line.

Answer 1

Results are below.

Step-by-step explanation:

First, we need to calculate the activities allocation rates:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Material handling= 3,750/100= $37.5 per move

Quality control=13,860/1,000= $13.86 per inspections

Machine maintenance= 21,450/7,150= $3 per machine hour

Now, we can allocate costs to each product:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Standard:

Allocated overhead= (37.5*30) + (13.86*400) + (3*4,150)

Allocated overhead= $19,119

Deluxe:

Allocated overhead= (37.5*70) + (13.86*600) + (3*3,000)

Allocated overhead= $19,941