EA9.

LO 6.3Custom’s makes two types of hats: polyester (poly) and silk. There are two cost pools: setup, with an estimated $100,000 in overhead, and inspection, with $25,000 in overhead. Poly is estimated to have 750,000 setups and 170,000 inspections, while silk has 250,000 setups and 80,000 inspections. How much overhead is applied to each product?

Instructions are listed below.

Explanation:

Giving the following information:

There are two cost pools: setup, with an estimated $100,000 in overhead, and inspection, with $25,000 in overhead.

Poly is estimated to have 750,000 setups and 170,000 inspections.

Silk has 250,000 setups and 80,000 inspections.

First, we need to calculate the estimated overhead rate for each activity pool:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Setup:

Estimated manufacturing overhead rate = 100,000/1,000,000 = $0.1 per setup

Inspections:

Estimated manufacturing overhead rate = 25,000/250,000 = $0.1 per inspection

Now, we can allocate overhead costs:

Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

Poly:

Allocated MOH = 0.1*750,000 + 0.1*170,000 = $92,000

Silk:

Allocated MOH = 0.1*250,000 + 0.1*80,000 = $33,000