110 Search E45 Assigning Costs Using Activity Proportions IL

110% Search E4-5 Assigning Costs Using Activity Proportions ILO 4-5, 4-6 Gable Company uses three activity cost pools. Each pool has a cost driver. Information for Gable Company follows Total Cost of Pool 398,200 89,725 70,413 Estimated Driver 0,500 9,250 490 Activity Cost Pools Cost Driver Designing costs Setup costs Number of machine hours Number of design hours Number of batches Suppose that Gable Company manufactures three products, A, B, and C. Information about these products follows Product A Product BProduct C 10,500 Number of machne hours Number of design hours Number of batches 35,000 3,700 45,000 2.050 170 3,500 Round your other Required: 1. Using activity proportions, intermediate calculations and final answer to the nearest whole dolliar delermine the amount of overhead ass god to each product- (Round Activity Proportion to 2 decmal places (eg-3216 Product A Product EB Product C 8 4 6

Solution

Product

A

B

C

Total

Number of machine hours

35,000

45,000

10,500

90,500

Number of design hours

3,700

2,050

3,500

9,250

Number of batches

40

170

280

490

Activity Cost Pools

Total cost of pools

Product A

Product B

Product C

Machining

$     398,200

$         154,000

$   198,000

$        46,200

Designing cost

$     89,725

$            35,890

$     19,885

$       33,950

Setup cost

$    70,413

$              5,748

$      24,429

$        40,236

Total

$      558,338

$         195,638

$    242,314

$     120,386

Explanation:

Machining overhead cost per hour = Total cost pools/total cost driver = $ 398,200/90,500 = $ 4.4

Designing overhead cost per hour = $ 89,725/9,250 = $ 9.7

Setup overhead cost per batch = $ 70,413/490 = $ 143.7

For Product A:

Machining overhead cost = $ 4.4 x 35,000 = $ 154,000

Designing overhead cost = $ 9.7 x 3,700 = $ 35,890

Setup overhead cost = $ 143.7 x 40 = $ 5,748

For Product B:

Machining overhead = $ 4.4 x 45,000 = $ 198,000

Designing overhead cost = $ 9.7 x 2,050 = $ 19,885

Setup overhead cost = $ 143.7 x 170 = $ 24,429

For Product C:

Machining overhead = $ 4.4 x 10,500 = $ 46,200

Designing overhead cost = $ 9.7 x 3,500 = $ 33,950

Setup overhead cost = $ 143.7 x 280 = $ 40,236

Product	A	B	C	Total
Number of machine hours	35,000	45,000	10,500	90,500
Number of design hours	3,700	2,050	3,500	9,250
Number of batches	40	170	280	490