3 Vintage Fun reproduces oldfashioned style roller skates an

3. Vintage Fun reproduces old-fashioned style roller skates and skateboards. The annual production and sales of roller skates is 950 units, while 1,750 skateboards are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Roller skates require 2.5 direct labor hours per unit, while skateboards require 1.25 direct labor hours per unit. The total estimated overhead for the period is $114,300. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:                                                                                                                                                                                                                                                       

3a. What is the predetermined overhead allocation rate using the traditional costing system?  

3b. What is the overhead cost per skateboard using an activity-based costing system?  

Solution

Traditional

950*2.5= 2,375

1750 *1.25= 2187.50

Total direct labor hours 4562.5

Overhead rate is 114,300/4562.5= 25.052