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Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning
Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $777,255 is based on 35,500 machine hours. In an initial analysis of overhead costs, Eric Parker has identified the following activity cost pools. Cost Pool Product assembly Machine setup and calibration Product inspection Raw materials storage Expected Cost Expected Activities $ 289,325 35,500 Machine hours 242,550 1,650 setups 127,020 1,740 batches 118,360 538,000 pounds $ 777,255 Eric Parker is taking the next step in his exploration of activity-based costing and wants to examine the overhead costs that would be allocated to two of the department's four products. He has gathered the following budget information about each product. Component 3F5 860 Component 176 11,700 Driver Usage Machine hours Setups Batches Pounds of raw materials 20 20 10,000 10 10,000 (a) Calculate the total overhead allocated to each component under the traditional method using machine hours as the overhead application base. (Round overhead rates to 2 decimal places, e.g. 5.27 and round final answers to O decimal places, e.g. 5,275.) Component 3F5 Component T76 Total Overhead allocated $ (b) Calculate the total overhead allocated to each component under activity-based costing. (Round overhead rates to 2 decimal places, eg. 5.27 and round final answers to O decimal places, e.g. 5,275.) Component 3F5 Component T76 Total Overhead allocated $
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