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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 $1,082,560 is based on 27.064 machine hours. In an initial analysis of overhead costs, Eric has identified the following activity cost pools. Cost Pool Expected Cost Expected Activities Product assembly $ 731,500 38,500 machine hours Machine setup and calibration 259,600 4,400 setups Product inspection 52,260 1,340 batches Raw materials storage 39,200 245,000 pounds $ 1.082,560 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 Driver Usage Machine hours Setups Batches Component T76 11.100 19 980 43 20 15 Driver Usage Machine hours Setups Batches Pounds of raw materials Component 3F5 980 43 20 Component T76 11,100 19 15 10,000 10,000 (a) Calculate the total overhead allocated to each component under the traditional method using machine hours as the overhead application base. Component 3F5 Component 176 Total Overhead allocated $ 39200 $ 444000 (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 decimal places, es. 5.275.) Component 3F5 Component T76 Total Overhead allocated
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