Problem 14 - Nader Company manufactures 15 models of widgets and has used a trad
ID: 2444425 • Letter: P
Question
Problem 14 - Nader Company manufactures 15 models of widgets and has used a traditional overhead allocation based on direct labor cost. The following costs and activities are expected for June:
Activity
Cost
Direct labor
3,625 direct labor hours
$58,000
Indirect costs
Materials ordering
600 purchase orders
$12,600
Materials handling
21,000 crates of materials
42,000
Quality control
900 inspections
32,400
Total indirect costs
$87,000
Nader will produce 1,200 blue widgets in June with following production costs:
Direct labor
320 hours @ $16 per hour
Purchase orders issued
16
Crates of materials used
700
Inspections made
15
A. Calculate the budgeted overhead cost to be allocated to each blue widget under the current traditional approach.
B. Calculate the budgeted overhead cost to be allocated to each blue widget using the ABC approach.
Activity
Cost
Direct labor
3,625 direct labor hours
$58,000
Indirect costs
Materials ordering
600 purchase orders
$12,600
Materials handling
21,000 crates of materials
42,000
Quality control
900 inspections
32,400
Total indirect costs
$87,000
Explanation / Answer
A.Calculate the budgeted overhead cost to be allocated to each blue widget under the current traditional approach.
B. Calculate the budgeted overhead cost to be allocated to each blue widget using the ABC approach.
Activity Cost Estimated overhead costs/ DL cost $1.50 per DL$ Blue widgets =$1.5x(140hrsx16 per hour) $ 3,360 Overhead cost of each blue widget = $3,360/1,000 $3.36