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.

Estimated Wheel Products

Direct Labour Hours per Wheel

Car

40,000

1.5

Truck

10,000

3.0

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 is used to allocate overhead costs. [4 Marks] 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

Inspector

Expected use of cost drivers

1,200 setups

90,000 labor hours

1.000 inspections

Estimated overhead costs

$276,000

5300,000

5264.000

Compute the activity-based overhead rates for these three cost pools. [3 marks]

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 -

[4 marks]

Expected Use of Cost Drivers Per Product

Car

Truck

[Number of setups

Direct labor hours

[Number of inspections

d. What do you believe the controller should do? [1 mark]

400

60,000

500

800

30,000

500