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Problem 6 - Traditional vs. ABC - 11 total points The following cost information is available for David, Ltd.: Activity Allocation Base Volume of Activity

Problem 6 - Traditional vs. ABC -11 total points

The following cost information is available for David, Ltd.:

Activity

Allocation Base

Volume of Activity

Overhead Cost

Purchasing

Purchase orders

25,000

$200,000

Receiving

Shipments received

20,000

100,000

Machine setups

Setups

5,000

275,000

Quality control

Inspections

30,000

210,000

Direct materials are $15 per unit for luxury handbags and $10 per unit for deluxe handbags. There were 12,000 direct labor hours. Each of which was charged to inventory at $18 per hour.

Required: 1. Calculate the overhead rate using activity-based costing.

The overhead rate for each activity is as follows:

Purchasing:

Receiving:

Machine setups:

Quality control:

Data for requirement 2:

One particular batch of 40 luxury handbags had the following specifications:

Direct labor hours

18

Purchase orders

7

Shipments received

4

Setups

3

Inspections

10

  1. Using the data in requirement 2 and overhead rates computed in requirement 1, calculate the overhead to be allocated to the bags under the activity-based costing method.

Purchasing:

Receiving:

Machine setups:

Quality control:

Total

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