Q5

Mannheim Corporation manufactures small camping tents and family camping tents. Estimated direct labor time to produce each type of tent is as follows:

	Small	Family
Estimated tents produced	25,000	10,000
Direct labor hours per tent	2	5

Estimated overhead for the period = 1,200,000 SAR.

a) Compute the overhead cost assigned to each type of tent assuming direct labor hours are used to allocate overhead costs.

The controller is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the family tent product line because of its complexity. He therefore developed the following three activity cost pools and related cost drivers to better understand the costs.

Activity Cost Pools	Expected Use of Cost Drivers	Estimated Overhead Costs (SAR)
Setting up machines	1,000 setups	220,000
Assembling	90,000 labor hours	990,000
Inspection	1,200 inspections	240,000

b) Calculate the activity-based overhead rates for these three cost pools.

c) Compute the cost that is assigned to each bicycle product line using activity-based costing system, given the following information.

Expected Use of Cost Drivers per Product
	Small	Family
Number of setups	150	850
Direct labor hours	30,000	60,000
Number of inspections	100	1,100