Q 7 b

Blossom Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Daniel Jackson, has developed the following information: Car Truck Estimated wheels produced 49,000 19,000 Direct labour hours per wheel 2 4 Total estimated overhead costs for the two product lines are $870,000. (a) Your answer is correct. Calculate the overhead cost assigned to the car wheels and truck wheels, assuming that direct labour hours are used to allocate overhead costs. Car wheels $ 5 490000 $ 380000 Truck wheels $ 870000 Total overhead Daniel 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: Estimated Overhead Costs Activity Cost Pools Estimated Use of Cost Drivers Setting up machines $260.000 500 set-ups Assembling 222,000 37,000 labour hours Inspection 388.000 776 inspections Calculate the activity-based overhead rates for these three cost pools. Cost Pool Rate Setting up machines $ per set-up Assembling $ per labour hour per inspection Inspection