Q$6-$

Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information.

$\backslash$table$[[,\backslash$table$[[$sollowing information.$]]],[,$Estimated wheels produced,Car,Truck$],[,$Direct labor hours per wheel,$40,500,10,500],[$Total estimated overhead costs for the two product lines are,$\frac{1}{\text{\$}775\mathrm{.}000},3]]$

Instructions:

$($a$)$ Compute the overhead cost assigned to the car and truck wheels, assuming that direct labor hours is used to allocate overhead costs.

Overhead assigned

$($b$)$ Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheel product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

$\backslash$table$[[$Activity Cost Pool,Expected Use of Cost,Estimated Overhead,ABC Overhead Rate$],[$Setting up machines,$$223,420\mathrm{.}00,1,000,$setups,$],[$Assembling$,$$$283,420\mathrm{.}00,70,000,$labor hours,$],[$Inspection$,$$$273,420\mathrm{.}00,1,200,$inspections,$]]$

Compute the activity$-$based overhead rates for these three cost pools.

$($c$)$ Compute the cost that is assigned to the car wheels and truck product lines using an activity$-$based costing system, given the following information.

$\backslash$table$[[,$Car Wheels,,$],[$Activity Cost Pool,$\backslash$table$[[$Expected Use of Cost$],[$Drivers per Product$]],\backslash$table$[[$Activity Based Overhead$],[$Rates$]],$Cost Assigned$],[$Setting up machines,$250,,],[$Assembling$,40,500,,],[$Inspection$,140,,]]$

$\backslash$table$[[,\backslash$table$[[$Truck Wheels$],[$Expected Use of Cost$],[$Drivers per Product$]],\backslash$table$[[$Activity Based Overhead$],[$Rates$]],$Cost Assigned$],[$Activity Cost Pool,,,$],[$Setting up machines,$850,,],[$Assembling$,34,500,,],[$Inspection$,1,180,,]]$