E17.4 Assign overhead using traditional costing and ABC Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information. Total estimated overhead costs for the two product lines are $770,000. Instructions a. Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to assign overhead costs. b. Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Compute the activity-based overhead rates for these three cost pools. c. Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information. d NOTE: Enter a formula, a cell reference, or a value (if you are unable to reference a cell), into the yellow shaded input cells. a. Direct labor hours for car wheels Direct labor hours for truck wheels Total direct labor hours Total estimated overhead Total direct labor hours OH rate/DLH Overhead assigned: Direct labor hours Overhead rate / direct labor hour Total OH assigned b. Activity Cost Pool Setting up machines Assembling Inspection c. \begin{tabular}{|r|} \hline 40,000 \\ \hline 30,000 \\ \hline 70,000 \\ \hline \hline \end{tabular} \begin{tabular}{|lr|} \hline$ & 770,000 \\ \hline & 70,000 \\ \hline$ & 11.00 \\ \hline \hline \end{tabular} Car wheels 40,000 \begin{tabular}{|r|} \hline 40,000 \\ \hline \\ \hline \end{tabular} Expected Use Estimated OH \begin{tabular}{|lr|} \hline$ & 220,000 \\ \hline$ & 280,000.00 \\ \hline$ & 270,000.00 \\ \hline \end{tabular} \begin{tabular}{|r|} \hline 1,000 \\ \hline 70,000 \\ \hline 1,200 \\ \hline \end{tabular} Truck wheels Total ABCOH Rates \begin{tabular}{|lr|} \hline & \\ \hline & \\ \hline & \\ \hline & ABCOH \\ \hline & Rates \\ \hline$ & 220.00 \\ \hline$ & 4.00 \\ \hline$ & 225.00 \\ \hline \end{tabular} d. What do you believe Hermann should do