Monrovia Bike Corporation manufactures two models of bicycles: the \"Gully Runne

Question

Monrovia Bike Corporation manufactures two models of bicycles: the "Gully Runner" and the "Claim Jumper." In the past, Monrovia had been using a traditional overhead allocation system based on machine hours. Monrovia has decided to switch to an activity-based costing system using two activity cost pools. Information related to the new system is as follows:

activity estimated overhead cost estimated activity
Automated assembly $189,000 $ 7,000 machine hours
parts management $63,000 $ 100 part numbers

actual activity for the year for the two models of bicycles were as follow:


bicycle machine part
produced hours used numbers used
Claim jumper 300 2400 70
Gully Runner 960 4800 30




QUestion :

1. If Monrovia's actual overhead cost was $285,400, what would total under- or overapplied overhead be for the year under the new activity-based costing system?

Explanation / Answer

OH cost p.hr (automated assembly) = $189,000/7000hrs = $27p.hr OH cost p.part (parts mgt.) = $63000/100 = $630 p.part Total OH cost (claim jumper) = ($27 * 2400) + ($630 * 70) = $108900 Total OH cost (gully runner) = ($27 * 4800) + ($630 * 30) = $148500 Total absorbed Overhead = $108900 + $148500 = $257400 Actual overhead = $285400 Hence, underapplied overhead = $28000

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