Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Activity Cost Pools Estimated Use of Cost Drivers Estimated Overhead Costs Setting up machines 1,000 setups $216,000 Assembling 72,000 labor hours 360,000 Inspection 1,200 inspections 259,200 Compute the activity-based overhead rates for these three cost pools.
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Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.
|
Activity Cost Pools
|
Estimated Use of
Cost Drivers |
Estimated Overhead
Costs |
|||
| Setting up machines | 1,000 | setups | $216,000 | ||
| Assembling | 72,000 | labor hours | 360,000 | ||
| Inspection | 1,200 | inspections | 259,200 |
Compute the activity-based overhead rates for these three cost pools.
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