S25 : d etiam C D E F G L M 1 E17-4 - Assign overhead using traditional costing and ABC Name: 2 Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to 13 assign to each product line, the controller, Robert Hermann, has developed the following information. N O Estimated wheels produced Direct labor hours per wheel Car 40,000 Truck 10,000 9 Total estimated overhead costs for the two product lines are: $770,000 11 Instructions 12 (a) Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours 13 is used to allocate overhead costs. 14 (b) Hermann is not satisfied with the traditional method of allocating overhead because he believes that most 15 of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops 16 the following three activity cost pools and related cost drivers to better understand these costs. Expected Use of Estimated Overhead Activity Cost Pools Cost Drivers Costs Setting up machines 1,000 setups $220,000 Assembling 70,000 labor hours 280,000 Inspection 1,200 inspections 270,000 Total $770,000 Compute the activity based overhead rates for these three cost pools. 25 (c) Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based 26 costing system, given the following information. 27 28 Expected Use of Cost Drivers per Product T Expected Use of Cost Drivers per Product Car Number of setups 200 Direct labor hours 40,000 Number of inspections 100 Total 1,000 ruck 8 00 30,000 1.100 34 (d) What do you believe Hermann should do? 36 NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?". 40 (a) Value Direct labor hours for car wheels Direct labor hours for truck wheels Total Direct labor hours Value Value Value Total direct labor hours OH rate/DLH Overhead assigned heels Truck wheels Total Overhead Direct labor hours Overhead rate / direct labor hour Total OH assigned AutoSave Ch 17-E4-Rev student - Protected View - File Home insert Page Layout Formulas Data Review View Help Be careful files from the Internet can contain viruses. Unless you need to edit, it's safer to A PROTECTED VIEW PRIVACY SETTINGS APPLIED NOTICE Your account privacy settings are being applied to this device. To adjust your settings go to Most features are disabled because your Office product is inactive. To use for free, sign in S26 -: Xf AALB C D E F G H I J 57 (b) Activity Cost Pool Setting up machines Assembling Inspection Estimated OH Value Value Value Expected Use + of Cost Drivers = Value Value Value ABC OH Rate ? ? /setup /labor hour /inspection ? 63 (c) Car Wheels Expected Use o Cost Driver/Unix Value Cost Assigned Activity Cost Pool Setting up machines Assembling Inspection Total cost assigned ABC OH Rates Value Value Value Value Truck Wheels Cost Assigned = Activity Cost Pool Setting up machines Assembling Inspection Total cost assigned Expected Use o Cost Driver/Unix Value Value Value ABC OH Rates Value Value Value 80 (d) What do you believe Hermann should do? & E17-4 Type here to search o A J K L M B C D E F Activity Cost Pool Cost Driver/Unix Setting up machines Value Assembling Value Inspection Value Total cost assigned G Rates Value Value Value H H I I - Assigned 1 ? ? ? ? Total cost assigned ? (d) What do you believe Hermann should do? After you have completed E17-4, consider the additional question 1. Assume that total estimated overhead costs changed to $850,000 and the estimated overhead > Setting up machines and Assembly changed to $260,000 and $320,000 respectively. Redo instruction (a) to (c). Round overhead rates to two decimal points. Copy this worksheet and create a new tab in this workbook named Option2 for this work. If you use formulas in Excel to do this work, then your calcs will be done when you copy the worksheet