Question
Kramerica, Incorporated currently uses traditional costing procedures. They apply $830,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The
Kramerica, Incorporated currently uses traditional costing procedures. They apply $830,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.
| Product | Pool Number 1 (Driver: DLH) | Pool Number 2 (Driver: SU) | Pool Number 3 (Driver: PC) |
|---|---|---|---|
| Beta | 1,500 | 35 | 3,000 |
| Zeta | 3,500 | 65 | 1,000 |
| Pool Cost | $ 170,000 | $ 290,000 | $ 370,000 |
The overhead cost allocated to Beta by using activity-based costing procedures would be:
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