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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 or $701,340 is based on 35,067 machine hours. In an initial analysis of overhead costs, Eric has identified the following activity cost pools. Cost Pool Product assembly Machine setup and calibration Product inspection Raw materials storage Expected Cost $ 420,000 192,400 40,640 48,300 $ 701,340 Expected Activities 35,000 machine hours 3,700 Setups 1.270 batches 210,000 pounds 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 Component Driver Usage 3F5 T76 Machine hours 840 11,800 Setups 38 Batches 15 15 Pounds of raw materials 10,000 10,000 19
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