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

Direct Labor Machine use hours

Department 1 $18,800 2,000
Department 2 13,200 1,200
Totals $32,000 3,200

Factory overhead costs
Rent and utilities $12,200
Indirect labor 5,400
General office expense 4,000
Depreciation—Equipment 3,000
Supplies 2,600
Total factory overhead $27,200

Compute the total amount of overhead cost allocated to Department 1 using activity-based costing.

Answer 1

Overhead costs allocated to Department 1 is $ 16,700

Step-by-step explanation:

Overhead costs allocation based on Direct Labor Cost

Indirect Labor $ 5,400

Supplies $ 2,600

Costs allocation based on direct labor costs $ 8,000

Overhead costs allocation based on Machine Hours

Rent and utilities $ 12,200

General Office expense $ 4,000

Depreciation Equipment $ 3,000

Cost allocation based on machine hours $ 19,200

Direct Labor Machine Use Hours

Department 1 $ 18,800 2,000

Department 2 $ 13,200 1,200

Total company $ 32,000 3,200

Department 1 % to total costs

= $ 18,800/ $ 32,000 = 58.75 %

2000 hours / 3,200 hours 62.50 %

Total Overhead costs allocated to Department 1

$ 8,000 * 58.75 % $ 4,700

$ 19,200 * 62.5 % $ 12,000

Total Overhead cost for Department 1 $ 16,700