Exercise 7-7 Eric Parker has been studying his department\'s profitability repor

Question

Exercise 7-7 Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $920,520 is based on 43,500 machine hours. In an initial analysis of overhead costs, Eric has identified the following activity cost pool:s Cost Pool Product assembly Machine setup and calibration Product inspection Raw materials storage Expected Cost Expected Activities $387,150 320,950 126,380 86,040 920,520 43,500 Machine hours 2,450 setups 1,420 batches 478,000 pounds (a) Calculate the company's overhead rate based on machine hours (Round answer to 2 decimal places, e.g. 15.25.) Overhead rate $ / MH (b) Calculate the company's overhead rates using the proposed activity- based costing pools. (Round answers to 2 decimal places, e.g. 15.25.) Product assembly Machine setup and calibration$ Product inspection Raw materials storage / MH / setup / batch

Explanation / Answer

Exercise 7-7 a Overhead rate = 920520/43500= $21.16 b Product assembly 8.9 =387150/43500 Machine setup and calibration 131 =320950/2450 Product inspection 89 =126380/1420 Raw materials storage 0.18 =86040/478000 Exercise 7-9 a Overhead rate = 995100/46000= $21.63 Total overhead allocated: Component 3F5 27254 =1260*21.63 Component T76 209811 =9700*21.63 b Activity rates: Product assembly 9.15 =420900/46000 Machine setup and calibration 112.67 =304200/2700 Product inspection 94 =124080/1320 Raw materials storage 0.24 =109920/458000 Component 3F5 Component T76 Product assembly 11529 88755 Machine setup and calibration 5070 2141 Product inspection 1880 940 Raw materials storage 2400 2400 Total overhead allocated 20879 94236

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