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2 September, 23:08

PB5.

LO 6.3Wrappers Tape makes two products: Simple and Removable. It estimates it will produce 369,991 units of Simple and 146,100 of Removable, and the overhead for each of its cost pools is as follows:

It has also estimated the activities for each cost driver as follows:

How much is the overhead allocated to each unit of Simple and Removable?

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  1. 3 September, 02:41
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    Calculation of cost driver rates

    Material receipts = $249,975/750 = $333.30 per requisition

    Machine set-up = $150,000/200 set-ups = $750.00 per set-up

    Assembly = $450,000/300 parts = $1,500 per part

    Machine maintenance = $175,000/3,500 hours = $50 per machine hour

    Calculation of overhead allocated to each unit of products

    Material receipts

    Simple = $333.30 x 300

    369,991 units

    = $0.27 per unit

    Removable = $333.33 x 450

    146,100 units

    = $1.03 per unit

    Machine set-up

    Simple = $750 x 150 set-ups

    369,991 units

    = $0.30 per unit

    Removable = $750 x 50 set-ups

    146,100 units

    = $0.26

    Assembly

    Simple = $1,500 x 100 parts

    369,991 units

    = $0.41 per unit

    Removable = $1,500 x 200 parts

    146,100 units

    = $2.05 per unit

    Machine maintenance

    Simple = $50 x 2,000 machine hours

    369,991 units

    = $0.27 per unit

    Removable = $50 x 1,500 machine hours

    146,100 units

    = $0.51 per unit

    Calculation of overhead allocated to each product

    Simple Removable

    $ $

    Material receipts 0.27 1.03

    Machine set-up 0.30 0.26

    Assembly 0.41 2.05

    Machine maintenance 0.27 0.51

    Overhead allocated 1.25 3.85

    Explanation:

    The overhead allocation rate is calculated by dividing the overhead for each cost pool by the total cost driver for each cost pool.

    The overhead allocated to each product is calculated by multiplying the cost driver rate by the cost driver for each product divided by the number of units of each product.
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