Question

Fischer Company identified the following activities, costs, and activity drivers.

Activity Expected Costs Expected Activity
Handling parts $425,000 25,000 parts in stock
Inspecting product $390,000 940 batches
Processing purchase orders $220,000 440 orders
Designing packaging $230,000 5 models
1. Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours.
B. Compute separate rates for each of the four activities using the activity-based costing.

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Activity Expected Costs Expected Activity

Handling parts $425,000 25,000 parts in stock

Inspecting product $390,000 940 batches

Processing purchase orders $220,000 440 orders

Designing packaging $230,000 5 models

Total overhead= $1,265,000

First, we need to calculate a plantwide predetermined overhead rate:

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

Predetermined manufacturing overhead rate= 1,265,000/70,000

Predetermined manufacturing overhead rate= $18.07 per direct labor hour

Now, we can determine the overhead rate for each activity:

Handling parts= 425,000/25,000= $17 per part

Inspecting product= 390,000/940= $414.89 per batch

Processing purchase orders= 220,000/440= $500 per order

Designing packaging= 230,000/5= $46,000 per model