Lee Company manufactures kitchen mats It currently has two product lines, Basic and Premium Lee's manufacturing overhead totaled $52,080 this year It currently used a traditional system with overhead applied on the basis of direct labor(DL) hours The Basic Mat product line uses 600 DL hours to produce all the basic mats for the period and the and the Premium product line uses 400 DL hours How much overhead would be assigned to each product line Lee's Management is not sure this is the best way to allocate the overhead Over the past 5 years, they have automated a significant part of their manufacturing process and think machine hours(MH) may be a better cost driver of the overhead costs Assume Lee used machine hours to allocate overhead to each product line The Basis Mat product line uses 3,000 machine hours(MH) the Premium product line uses 4,150 MH Now how much overhead would be assigned to each product line Along with the technological advances in the manufacturing process, manufacturing overhead costs have significantly increased with a corresponding decrease in direct labor costs Lee's management is considering another costing method, called Activity Based Costing, that breaks overhead up by activity costs and assigns multiple cost drivers to allocate overhead This required some additional research regarding overhead costs and appropriate cost drivers but Lee's management came up with the following MOH cost collect by Activity Materials Handling Activity $5,000 Quality Control Activity $18,480 Machine Maintenance Activity $28,600 Total MOH costs $52,080 Cost drivers Material Handling Costs of moves Quality Control Costs of inspections Machine Maintenance of machine hours Cost drivers consumed by each product line Basic Product line 40 moves 600 inspections 3,000 machine hours Premium Product line 60 moves 720 inspections 4,150 machine hours How much overhead will go to each product line 4 Which method of allocating overhead meets the goal of being fair and reasonably accurate Which method do you think is the most expensive to implement

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Lee Company manufactures kitchen mats. It currently has two product lines, Basic and Premium. Lee's manufacturing overhead totaled $52,080 this year. It currently used a

Lee Company manufactures kitchen mats. It currently has two product lines, Basic and Premium.

Lee's manufacturing overhead totaled $52,080 this year. It currently used a traditional system with overhead applied on the basis of direct labor(DL) hours. The Basic Mat product line uses 600 DL hours to produce all the basic mats for the period and the and the Premium product line uses 400 DL hours.

How much overhead would be assigned to each product line?
Lee's Management is not sure this is the best way to allocate the overhead. Over the past 5 years, they have automated a significant part of their manufacturing process and think machine hours(MH) may be a better cost driver of the overhead costs. Assume Lee used machine hours to allocate overhead to each product line. The Basis Mat product line uses 3,000 machine hours(MH) the Premium product line uses 4,150 MH. Now how much overhead would be assigned to each product line?
Along with the technological advances in the manufacturing process, manufacturing overhead costs have significantly increased with a corresponding decrease in direct labor costs. Lee's management is considering another costing method, called Activity Based Costing, that breaks overhead up by activity costs and assigns multiple cost drivers to allocate overhead. This required some additional research regarding overhead costs and appropriate cost drivers but Lee's management came up with the following:

MOH cost collect by Activity:
Materials Handling Activity	$5,000
Quality Control Activity	$18,480
Machine Maintenance Activity	$28,600
Total MOH costs	$52,080

Cost drivers:

Material Handling Costs- # of moves
Quality Control Costs - # of inspections
Machine Maintenance - # of machine hours

Cost drivers consumed by each product line:

Basic Product line - 40 moves; 600 inspections; 3,000 machine hours
Premium Product line - 60 moves; 720 inspections; 4,150 machine hours

How much overhead will go to each product line?

4. Which method of allocating overhead meets the goal of being "fair" and "reasonably accurate"? Which method do you think is the most expensive to implement?