Sunland, Inc. produces two types of gas grills: a family model and a deluxe model. Sunlands controller has decided to use a plantwide overhead rate based on direct labor costs. The president of the company recently heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the companys operations:

		Family Model		Deluxe Model
Direct labor costs		$77,400		$154,800
Machine hours		2,000		2,000
Setup hours		200		800

Total estimated overhead costs are $464,400. Overhead cost allocated to the machining activity cost pool is $278,640 and $185,760 is allocated to the machine setup activity cost pool.

(a)

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Your answer is correct.

Compute the overhead rate using the traditional (plantwide) approach. (Round answer to 2 decimal places, e.g. 15.25.)

Overhead rate

$enter the overhead rate in dollars rounded to 2 decimal places

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Attempts: 1 of 3 used

(b)

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Your answer is correct.

Compute the overhead rates using the activity-based costing approach. (Round answers to 2 decimal places, e.g. 15.25.)

		Overhead Rate
Machining		$enter a dollar amount per hour rounded to 2 decimal places per hour
Machine set up		$enter a dollar amount per hour rounded to 2 decimal places per hour

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Attempts: 1 of 3 used

(c)

Your Answer

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Your answer is partially correct.

Determine the difference in allocation between the two approaches.

		Family Model		Deluxe Model
Traditional		$enter a dollar amount		$enter a dollar amount
ABC		$enter a dollar amount		$enter a dollar amount
Difference		$enter a dollar amount		$enter a dollar amount

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Solution

Attempts: 3 of 3 used

(d)

Sunland, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the following:

		Family Model		Deluxe Model
Direct labor costs		$77,400		$154,800
Machine hours		2,000		2,000
Setup hours		200		800
Packaging hours		50		75

The estimated overhead of $464,400 is allocated as follows: machining activity cost pool $247,680, machine set up $175,440 and packaging $41,280. (1) Determine the overhead rates using the activity-based costing approach with three cost pools. (Round answers to 2 decimal places, e.g. 15.25.)

		Overhead Rate
Machining		$enter a dollar amount per hour rounded to 2 decimal places per hour
Machine set up		$enter a dollar amount per hour rounded to 2 decimal places per hour
Packaging		$enter a dollar amount per hour rounded to 2 decimal places per hour

(2) Calculate the overhead allocation for the family model and the deluxe model using three activity cost pools.

		Overhead Allocation
Family model		$enter a dollar amount
Deluxe model		$enter a dollar amount