E4-4 Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information. Estimated wheels produced Direct labor hours per wheel Car 40,000 1 Total estimated overhead costs for the two product lines are $770,000. Instructions (a) Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. Activity Cost Pools Setting up machines Assembling Inspection Truck 10,000 3 (b) Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Expected Use of Cost Drivers 1,000 setups 70,000 labor hours 1,200 inspections Estimated Overhead Costs $220,000 280,000 270,000 Compute the activity-based overhead rates for these three cost pools. (c) Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information.
E4-4 Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information. Estimated wheels produced Direct labor hours per wheel Car 40,000 1 Total estimated overhead costs for the two product lines are $770,000. Instructions (a) Compute the overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs. Activity Cost Pools Setting up machines Assembling Inspection Truck 10,000 3 (b) Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Expected Use of Cost Drivers 1,000 setups 70,000 labor hours 1,200 inspections Estimated Overhead Costs $220,000 280,000 270,000 Compute the activity-based overhead rates for these three cost pools. (c) Compute the cost that is assigned to the car wheels and truck wheels product lines using an activity-based costing system, given the following information.
Chapter5: Process Costing
Section: Chapter Questions
Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text:E4-4 Altex Inc. manufactures two products: car wheels and truck wheels. To determine
the amount of overhead to assign to each product line, the controller, Robert Hermann,
has developed the following information.
Estimated wheels produced
Direct labor hours per wheel
Car
40,000
1
Total estimated overhead costs for the two product lines are $770,000.
Instructions
(a) Compute the overhead cost assigned to the car wheels and truck wheels, assuming
that direct labor hours is used to allocate overhead costs.
Activity Cost Pools
Setting up machines
Assembling
Inspection
Truck
10,000
3
(b) Hermann is not satisfied with the traditional method of allocating overhead because
he believes that most of the overhead costs relate to the truck wheels product line
because of its complexity. He therefore develops the following three activity cost pools
and related cost drivers to better understand these costs.
Expected Use of
Cost Drivers
1,000 setups
70,000 labor hours
1,200 inspections
Estimated Overhead
Costs
$220,000
280,000
270,000
Compute the activity-based overhead rates for these three cost pools.
(c) Compute the cost that is assigned to the car wheels and truck wheels product lines
using an activity-based costing system, given the following information.
Transcribed Image Text:Expected Use of Cost Drivers per Product
Car
Truck
800
30,000
1,100
Number of setups
Direct labor hours
Number of inspections
(d) What do you believe Hermann should do?
200
40,000
100
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PART D
Transcribed Image Text:Expected Use of Cost Drivers per Product
Car
Truck
800
30,000
1,100
Number of setups
Direct labor hours
Number of inspections
(d) What do you believe Hermann should do?
200
40,000
100
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