Answer:
Step 1: Identify cost activities and their cost drivers
- Material Handling ⇒ Labor hours
- Automated processing ⇒ Machine hours
- Plastic parts insertion ⇒ No. of parts
- Inspection ⇒ Labor hours
- Packaging ⇒ Orders shipped
Step 2: Assign overhead costs to activities identified
- Material Handling ⇒ $55,000
- Automated processing ⇒ $40,000
- Plastic parts insertion ⇒ $6,000
- Inspection ⇒ $29,000
- Packaging ⇒ $31,000
Step 3: Calculate Total Estimated Cost Driver Activity(for large cage only)
- Material Handling ⇒ 2 per unit × 350 = 700 labor hours
- Automated processing ⇒ 4 per unit ×350 = 1400 machine hours
- Plastic parts insertion ⇒ 8 per unit × 350 = 2800 no. of parts
- Inspection ⇒ 2 per unit × 350 = 700 labor hours
- Packaging ⇒ 180 orders shipped
Step 4: Calculate overhead rates
- Material Handling ⇒ $55,000 ÷ 700 = $79 per labor hour
- Automated processing ⇒ $40,000 ÷ 1400 =$28 per machine hour
- Plastic parts insertion ⇒ $6,000÷ 2800 = $2 per part
- Inspection ⇒ $29,000÷ 700= $42 per labor hour
- Packaging ⇒ $31,000 ÷ 180=$172 per order shipped
Step 5: Apply overheads to product
Since the the amount of activity consumed by each product is no given , it is unable to calculate per unit cost of overhead.
If it were given, the total activity consumed by the product would be multiplied by their respective activity rates calculated above, and then those amounts would be added together to get total overhead consumed by Large cage. Lastly, that total overhead will be divided by no. of units produced to get per unit overhead cost.
