Question 2: Raaste Ka Raja (RKR) Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller has developed the following information. Car Truck Estimated Wheel Products 40,000 Direct Labour Hours per Wheel 1.2 10,000 3.6 Total estimated overhead costs for the two product lines are $840,000. a. Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours are used to allocate overhead costs. [2 Marks] b. The controller is not satisfied with the traditional method of allocating overhead. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Activity cost pools Setting up machines Expected use of cost drivers Estimated overhead costs Assembling 1,000 setups 75,000 labor hours $241,000 $300,000 Inspection 1,300 inspections $299,000 [3 marks] Compute the activity-based overhead rates for these three cost pools. c. Calculate the overhead cost assigned to the car wheels and truck wheels product lines using an activity-based costing system on the basis of the following information. Expected Use of Cost Drivers Per Product [4 Marks] Number of setups Direct labor hours Number of inspections Car Truck 200 800 40,000 300 35,000 1,000 1. What do you believe the controller should do? [1 mark]