Chapter 4, Problem 5E

To determine

(1)

Concept introduction:

Activity based costing: It is an accounting technique that determines and allocates costs to overhead activities and then allocates those costs to products.

To compute:

Departmental overhead rate for both the departments based on their cost pools.

Answer to Problem 5E

Hence, the departmental overhead rate for the moulding based on the machine hours is $23.93/machine hours.

Hence, the departmental overhead rate for the trimming based on the direct labour hours is $12.29/direct labour hours.

Explanation of Solution

Department overhead rate for moulding department as follows:

$=\frac{estimatedoverhead\cos t}{machinehours}$

= $\frac{730000}{30500hrs}$

= 23.93/machine hours

Hence, the department overhead rate for the moulding based on the machine hours is $23.93/machine hours.

Department overhead rate for trimming department as follows,

$=\frac{estimatedoverhead\cos t}{labourhours}$

= $\frac{590000}{48000hrs}$

= 12.29/direct labour hours

Hence, the departmental overhead rate for the trimming based on the direct labour hours is $12.29/direct labour hours.

To determine

(2)

Concept introduction:

Activity based costing: It can be defined as the costing that assigns cost by using factors like cost pools related to a particular overhead and then assigns the costs to the products.

To compute:

Use department overhead rates to assign total overhead cost to each merchandise line.

Answer to Problem 5E

Total overhead cost to part A27C is $130646 and for part X82B is $67424

Explanation of Solution

Overhead cost assigned to A27C (department wise) is as follows:

$Totaloverheadmoulding=machinehours\times overheadrateofdepartment$

$=5100machinehours\times \$23.93/machinehours$

$=\$122043$

Now,

Total overhead cost to A27C (department wise ) is as follows:

$Totaloverheadtrimming=labourhours\times departmentoverheadrate$

$=700directlabourhours\times 12.29/directlabourhours$

$=\$8603$

$Totaloverheadforboththedepartment- \left(122043+8603\right)$

$=\$130646$

Overhead cost assigned to X82B (department wise) is as follows:

$\begin{array}{l} \\ Totaloverheadmoulding=machinehours\times overheadrateofdepartment\end{array}$

$=1020machinehours\times \$23.93/machinehours$

$=\$24409$

Now,

Total overhead cost to X82B (department wise) is as follows:

$Totaloverheadtrimming=labourhours\times departmentoverheadrate$

$=3500directlabourhours\times 12.29/directlabourhours$

$=\$43015$

$Totaloverheadforboththedepartment-\left(24409+43015\right)$

$=\$67424$