Bass Boss Manufacturing Company manufactures two types of bass boats. Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: Bass Boss Product Boss Boss Hog Bear Units per year 15,000 20,000 Machine hours/unit 3.0 5.0 Materials cost/unit $1,500 $2,000 Labor cost/unit $ 800 $1,000 Determine the allocation rate assuming the cost driver is machine hours/unit.

Allocation rate = $3 per machine hour

Explanation:

Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers. Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.

Activity rate is calculated as:

Activity overhead for the period / Total cost drivers for the period

Total machine hours = (15,000 * 3hrs) + (20,000 * 5 hrs)

= 145,000 hours

Overhead rate per machine her

= $435,000/145000 hours

= $3 per hour

the allocation rate is $3 per machine hour

Explanation:

Step 1 Find the to total Machine hours

Total Machine Hours

3.0*15,000 = 45,000

5.0*20,000 = 100,000

Total = 145,000

Step 2 Determine the Overhead allocation rate

Overhead allocation rate = Budgeted Overheads / Total Machine Hours

= $435,000/145,000

=$3 per machine hour