4a) To calculate the indirect overhead rate using the traditional (absorption) method, we need to add up the total indirect costs and divide them by the total direct labor hours.
Total indirect costs = Rent + Electricity + Depreciation + Supervisor Salaries
= $4,000,000 + $3,200,000 + $1,200,000 + $1,800,000
= $10,200,000
Total direct labor hours = Direct labor hours used for All-Terrain Cart + Direct labor hours used for Rugged Cart
= 80,000 hours + 40,000 hours
= 120,000 hours
Indirect overhead rate = Total indirect costs / Total direct labor hours
= $10,200,000 / 120,000 hours
= $85 per direct labor hour
Therefore, the indirect overhead rate using the traditional (absorption) method is $85 per direct labor hour.
4b) To calculate the overhead allocated to each type of product, we need to multiply the indirect overhead rate by the direct labor hours used for each type of cart.
Overhead allocated to All-Terrain Cart = Indirect overhead rate * Direct labor hours used for All-Terrain Cart
= $85 * 80,000 hours
= $6,800,000
Overhead allocated to Rugged Cart = Indirect overhead rate * Direct labor hours used for Rugged Cart
= $85 * 40,000 hours
= $3,400,000
Therefore, the overhead allocated to the All-Terrain Cart is $6,800,000 and the overhead allocated to the Rugged Cart is $3,400,000.
4c) To calculate the cost per unit of the cost driver for each activity, we need to divide the total cost of each activity by the total number of units of the cost driver.
Cost per unit of machine set-up = Cost of machine set-up / Number of machine set-ups
= $2,000,000 / (500 + 750)
= $2,000,000 / 1,250
= $1,600
Cost per unit of material movement = Cost of material movement / Number of production batches
= $1,400,000 / (200 + 150)
= $1,400,000 / 350
= $4,000
Cost per unit of assembly = Cost of assembly / Number of direct labor hours
= $5,000,000 / (80,000 + 40,000)
= $5,000,000 / 120,000
= $41.67
Cost per unit of quality inspection = Cost of quality inspection / Number of quality tests performed
= $1,800,000 / (1,000 + 1,800)
= $1,800,000 / 2,800
= $642.86
Therefore, the cost per unit of machine set-up is $1,600, the cost per unit of material movement is $4,000, the cost per unit of assembly is $41.67, and the cost per unit of quality inspection is $642.86.
4d) To calculate the overhead cost for each type of product using Activity Based Costing (ABC), we need to multiply the cost per unit of the cost driver by the number of units of the cost driver for each type of cart.
Overhead cost for All-Terrain Cart = Cost per unit of machine set-up * Number of machine set-ups for All-Terrain Cart
+ Cost per unit of material movement * Number of production batches for All-Terrain Cart
+ Cost per unit of assembly * Number of direct labor hours for All-Terrain Cart
+ Cost per unit of quality inspection * Number of quality tests performed for All-Terrain Cart
Overhead cost for Rugged Cart = Cost per unit of machine set-up * Number of machine set-ups for Rugged Cart
+ Cost per unit of material movement * Number of production batches for Rugged Cart
+ Cost per unit of assembly * Number of direct labor hours for Rugged Cart
+ Cost per unit of quality inspection * Number of quality tests performed for Rugged Cart
Overhead cost for All-Terrain Cart = $1,600 * 500 + $4,000 * 200 + $41.67 * 80,000 + $642.86 * 1,000
Overhead cost for Rugged Cart = $1,600 * 750 + $4,000 * 150 + $41.67 * 40,000 + $642.86 * 1,800
Calculating the overhead costs for each type of product using the given information and the cost per unit of the cost driver will give the final answers.
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