Question

Xie Company identified the following activities, costs, and activity drivers for 2017. The company manufactures two types of go-karts: Deluxe and Basic.

Activity Expected Costs Expected Activity
Handling materials $625,000 100,000 parts
Inspecting product 900,000 1,500 batches
Processing purchase orders 105,000 700 orders
Paying suppliers 175,000 500 invoices
Insuring the factory 300,000 40,000 square feet
Designing packaging 75,000 2 models


Required:
a. Compute a single plantwide overhead rate for the year, assuming that the company assigns overhead based on 125,000 budgeted direct labor hours.
b. In January of this year, the Deluxe model required 2,500 direct labor hours and the basic model required 6,000 direct labor hours. Assign overhead costs to each model using the single plantwide overhead rate.

Answer 1

Answer:

a $17.44 per direct labor hour

b. Assignment of Overheads

Deluxe model =$43,600

Basic model = $104,640

Explanation:

Plant wide overhead rate is the allocation rate used for allocating overheads (indirect costs) to jobs or products calculated for the whole entity.

Plant wide overhead rate = Budgeted Overheads / Budgeted Activity.

Calculation of Budgeted Overheads :

Handling materials                  625,000

Inspecting product                  900,000

Processing purchase orders   105,000

Paying suppliers                       175,000

Insuring the factory                 300,000

Designing packaging                75,000

Total Cost                               2,180,000

Plant wide overhead rate = Budgeted Overheads / Budgeted Activity.

                                           = $2,180,000/125,000

                                          = $17.44 per direct labor hour

Assignment of Overheads

Deluxe model required 2,500 direct labor hours

Deluxe model = 2,500 × $17.44

                        = $43,600

Basic model required 6,000 direct labor hours

Basic model = 6,000 × $17.44

                     = $104,640