CraftMade Company expects to produce 28,000 total units during the current perio

Question

CraftMade Company expects to produce 28,000 total units during the current period. The costs and cost drivers associated with four activity cost pools are given below:

    
Production of 2,000 units of an auto towing tool required 600 labor hours, 12 setups, and consumed 30 % of the product sustaining activities. How much total overhead cost will be allocated to this product if the company allocates overhead on the basis of a single overhead allocation rate based on direct labor hours?

ACTIVITIES: UNIT BATCH PRODUCT FACILITY LEVEL LEVEL LEVEL LEVEL   Cost $60,000 $28,000 $21,000 $168,000   Cost Driver 5,000 labor hrs 200 set ups % of use 28,000 units

Explanation / Answer

Total overheads = 60,000+28,000+21,000+168,000

= $277,000

Allocation rate based on direct labor hours = total overhead/labor hours

= 277,000/5,000

= $55.40 per labor hour.

For the production of auto towing tool 600 labor hours are required.

Thus alloctaed overhead cost = $55.4*600

= $33,240

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