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Gersema Industries produce a variety of sports equipment. In the past the company used a single predetermined overhead rate using machine hours to allocate
Gersema Industries produce a variety of sports equipment. In the past the company used a single predetermined overhead rate using machine hours to allocate manufacturing overhead. Managers estimate the company will use a total of 100,000 direct labor hours, 50,000 machine hours and incur $1,000,000 of manufacturing overhead in the upcoming year. The business has become more competitive so Hannah has suggested to Darcy, her cost accountant, that they need a better understanding of their costs. In order to better allocate manufacturing overhead costs, the company is going to start using an activity-based costing system. Management has estimated the following costs for the period: Costs per unit Javelins Shot Puts Direct Materials $13.20 $11.45 Direct Labor 12.00 15.00 Estimated Annual Manufacturing Overhead Activity Pool Activity Measure Est. MOH for the Total Estimated activity. Activity Purchasing P.O.s $100,000 50,000 P.O.s Molding Machine Hours $750,000 75,000 MHs Materials Handling #Material Requisitions $150,000 10,000 reqs. Data for two of their products: Activity Cost Pool (Measure) Purchasing (P.O.s) Molding (Machine Hours) Materials Handling (# Material Requisitions) Number of units produced Required: Estimated Activity Level for each product Javelins Shot Puts 4,000 P.O.s 5,000 P.O.s 11,000 MH 14,000 MH 800 Reqs 400 Reqs 85,000 units 76,000 units 1. Determine the predetermined overhead rate the company used in the past based on the single allocation base (driver) for allocating manufacturing overhead (Round to the penny). 2. Using the predetermined overhead rate, how much overhead would be allocated (applied) to producing 76,000 Shot Puts? 3. Using activity-based costing, how much overhead would be allocated (applied) to producing 76,000 Shot Puts (Round to the dollar)? 4. What is the unit product cost for ONE Shot Put if the company uses an activity-based costing system (Round to the penny)?
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