Question

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool Activity Rates
Supporting direct labor $ 6 per direct labor-hour
Machine processing $ 4 per machine-hour
Machine setups $ 50 per setup
Production orders $ 90 per order
Shipments $ 14 per shipment
Product sustaining $ 840 per product
Activity data have been supplied for the following two products:
Total Expected Activity
K425 M67
Number of units produced per year 200 2,000
Direct labor-hours 80 500
Machine-hours 100 1,500
Machine setups 1 4
Production orders 1 4
Shipments 1 10
Product sustaining 1 1
Required:
How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Answer 1

K425= $1,874

M67= $10,540

Step-by-step explanation:

Giving the following information:

Activity Cost Pool Activity Rates

Supporting direct labor $ 6 per direct labor-hour

Machine processing $ 4 per machine-hour

Machine setups $ 50 per setup

Production orders $ 90 per order

Shipments $ 14 per shipment

Product sustaining $ 840 per product

Total Expected Activity

K425 M67

Number of units produced per year 200 2,000

Direct labor-hours 80 500

Machine-hours 100 1,500

Machine setups 1 4

Production orders 1 4

Shipments 1 10

Product sustaining 1 1

To allocate overhead to each product, we need to use the following formula:

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

K425= (6*80) + (4*100) + (50*1) + (90*1) + (14*1) + (840*1)

K425= $1,874

M67= (6*500) + (4*1,500) + (50*4) + (90*4) + (14*10) + (840*1)

M67= $10,540