Spreadwell Paint Company manufactures two high-quality base paints: an oil-based paint and a latex paint. Both are housepaints and are manufactured in neutral white color only.
Spreadwell sells the white base paints to franchised retail paint and decorating stores where pigments are added to tint (color) the paint as the customer desires. The oil-based paint is made with organic solvents (petroleum products) such as mineral spirits or turpentine.
The latex paint is made with water; synthetic resin particles are suspended in the water, and dry and harden when exposed to the air.
Spreadwell uses the same processing equipment to produce both paints in different production runs. Between batches, the vats and other processing equipment must be washed and cleaned.
After analyzing the company’s entire operations, Spreadwell’s accountants and production managers have identifi ed activity cost pools and accumulated annual budgeted overhead costs by pool as follows.

Following further analysis, activity cost drivers were identified and their expected use by product and activity were scheduled as follows.

Spreadwell has budgeted 400,000 gallons of oil-based paint and 600,000 gallons of latex paint for processing during the year.
Instructions

(a) Prepare a schedule showing the computations of the activity-based overhead rates.

(b) Prepare a schedule assigning each activity’s overhead cost pool to each product.

(c) Compute the overhead cost per unit for each product.

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Activity Cost Pools Purchasing Processing (weighing and mixing, grinding, thinning and drying, straining) Packaging (quarts, gallons, and 5-gallons) Testing Storage and inventory control Washing and cleaning equipment Total annual budgeted overhead Estimated Overhead $ 240,000 1,400,000 580,000 240,000 180,000 560,000 $3,200,000