ABC Poppy Photographic Supply Company

Poppys controller has established the following activity cost pools and cost drivers for the current period.

Activity Budgeted Budgeted

Cost Pool OH Cost Cost Driver Activity Pool Rate

Machine setups $ 250,000 Number of setups 125 setups

Material handling 75,000 Pounds of RM 37,500 lb.

Hazardous waste Pounds of hazardous

control 25,000 chemicals used 5,000 lb.

Quality control 75,000 Number of inspections 1,000 inspections

Other overhead

costs 200,000 Machine hours 20,000 MH

An order for 1,000 boxes of film development chemicals has the following production requirements.

Machine setups 5 setups

Raw material 10,000 pounds

Hazardous materials 2,000 pounds

Inspections 10 inspections

Machine hours 500 MH

Required:

1. Determine the level of activity for each of the above activities. (unit, batch, etc.)
2. Compute the pool rates for each activity.
3. Compute the total overhead cost that should be assigned to the above order.
4. What is the overhead cost per box of chemicals?
5. Suppose Poppy were to use a single MOH allocation rate (POR) based on machine hours.

Compute that rate.

6. Using the single MOH allocation rate, compute the overhead cost that would be assigned to the above orderin total and per box.
7. Explain why the two product costing systems result in such widely differing costs.