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 intormation.

Estimated Wheel Products

Direct Labour Hours per Wheel

Car

40,000

1.2

Truck

10,000

3.6

Total estimated overhead costs for the two product lines are $840 000

Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is 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

Expected use of cost drivers

Setting up machines

1,000 setups

Assembling

84,000 labor hours

Inspection

1,300 inspections

Estimated overhead costs

$241,000

$300,000

$299,000

Compute the activity-based overhead rates for these three cost pools. [1.5 marks]

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 -

[2 marks]

Expected Use of Cost Drivers Per Product

Car

Truck

Number of setups

Direct labor hours

Number of inspections

200

48,000

100

800

36,000

1,200

What do you believe the controller should do? [0.5 marks]