URGENT HELP

LO17-3, LO17-6

EXERCISE 17.4

Overhead Cost Drivers; Determination and Use of Unit Cost

Safe-Haul manufactures custom trailer equipment. In June, the company built 400 utility trailers for Coles Trailer Sales. Assembly of these units required 1,200 hours of direct labor at a cost of $30,000, direct materials costing $333,000, and 600 hours of machine time. Based on an analysis of overhead costs at the beginning of the year, overhead is applied to utility trailer jobs using the following formula.

Overhead = 150% of direct labour cost + $120 per Machine Hour

a. Briefly explain why Safe-Haul might use two separate activity bases in applying overhead costs to utility trailer jobs.

b. Identify at least two types of overhead cost pools that might be driven by each of Safe-Hauls two cost drivers (i.e., direct labor cost and machine hours).

c. What appears to be the primary driver of overhead costs for this particular job?