EnviroTech PL is seeking to determine the actual costs incur

EnviroTech P/L is seeking to determine the actual costs incurred by each of its three machines last month. While it has accurate figures for the direct costs and usage of these machines last month, at this stage the indirect costs for each machine are to be determined with the assistance of budget estimates for the year. (a) DETERMINE the allocation rates for each machine if the estimated annual indirect cost budget is $50,000 per machine and the budget information in the table below is applicable Estimated Annual Activitv Level $100,000 2000 hours $250,000 Cost Source Allocation Basis Machine A Machine B Machine C Direct labour cost Direct labour hours Direct material cost (b) Using the allocation rates you determined in (a), CALCULATE the total costs to be attributed to each machine for the last month. The following data may be useful. Machine Identifier Cost Source Material Actual Cost Actual Hours $ 3,800 19,550 2,500 3,200 2,800 650 750 720 Labour

Solution

a) Indirect-cost rate = Machine A: Rate = $50,000/$100,000 = $0.50 per DL $ Machine B: Rate = $50,000/2,000 Hours $25.00 Per DL Hour Machine C: Rate = $50,000/$250,000 = $0.20 Per DM $ b) Machine A = Direct Cost (Material + Labors ) + Indirect Cost = $3800 + 2500 +2500 x $.50 $7,550.00 Machine B = $3200 + $25 x 750 hours $21,950.00 Machine C = $19,550 + 2800 + ($19,550 x $.020) $26,260.00