eesan Stree E17-4 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. Car Truck 40,000 Direct labor hours per wheel 10,000 3 Estimated wheels produced 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 allocate 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. Activity Cost Pools Setting up machines Expected Use of Cost Drivers 1,000 setups 70,000 labor hours 1,200 inspections Estimated Overhead Costs $220,000 280,000 Assembling Inspection 270,000 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. Expected Use of Cost Drivers per Product Number of setups Direct labor hours Number of inspections (d) What do you believe Hermann should do? Car Truck 200 40,000 800 30,000 100 1,100