Question

Tidwell Industries has the following overhead costs and cost drivers. Direct labor hours are estimated at 100000 for the year.

Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity
Ordering and Receiving Orders $140000 500 orders
Machine Setup Setups 315000 450 setups
Machining Machine 1562500 125000 MH
hours
Assembly Parts 1240000 1000000 parts
Inspection Inspections 320000 500 inspections
If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is:_________.

Answer 1

The overhead application rate for ordering and receiving, using activity-based costing, is calculated to be $280 per order.

Step-by-step explanation:

To calculate the overhead application rate for ordering and receiving using activity-based costing (ABC), you divide the estimated overhead costs by the number of cost driver activities. In this case, the estimated overhead cost for ordering and receiving is $140,000, and the driver activity is 500 orders.

The overhead application rate formula is:

Overhead Application Rate = Estimated Overhead Cost / Driver Activity

So, for ordering and receiving, it would be:

Overhead Application Rate for Ordering and Receiving = $140,000 / 500 orders

Calculating the above gives us:

Overhead Application Rate for Ordering and Receiving = $280 per order

Answer 2

$280 per order

Step-by-step explanation:

The computation of the overhead application rate for ordering and receiving is shown below:

= Estimated overhead cost for ordering and receiving orders ÷ cost driver activity

= $140,000 ÷ 500 orders

= $280 per order

In order to determine the overhead application rate for ordering and receiving we simply divided the estimated overhead cost by the cost driver activity