Question

Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Suppose that Schell has conducted further research into its overhead and potential cost drivers. As a result, the company has compiled the following detailed information, breaking total overhead into three cost pools:Activity Cost Pools Cost Driver Cost Assigned to Pool Quantity/Amount Consumed by Standard Floor Mat Line Quantity/Amount Consumed by Deluxe Floor Mat LineMaterial handling Number of moves $3,750 30 moves 70 movesQuality control Number of inspections $13,860 400 inspections 600 inspectionsMachine maintenance Number of machine hours $21,450 4,150 machine hours 3,000 machine hoursRequired:1. Calculate the activity rates for each cost pool assuming Schell uses an ABC system.Activity RateMaterial Handling _____ per Material MoveQuality Control _____ per InspectionMaintenance _____ per Machine Hour2. Calculate the amount of overhead that Schell will assign to the Standard floor mat line.3. Determine the amount of overhead Schell will assign to the Deluxe product line.

Answer 1

Answer:

1. Calculate the activity rates for each cost pool assuming Schell uses an ABC system.

Material Handling = Cost  Assigned  to Pool/ (Quantity/Amount Consumed by Standard Floor Mat Line / Quantity/Amount Consumed by Deluxe Floor Mat Line)

= 3,750/( 30 +70)

= $37.50 material move

Quality Control = 13,860/ ( 400 + 600)

= $13.86 per inspection

Maintenance = 21,450/ (4,150 + 3,000)

= $3 per machine hour

2. Calculate the amount of overhead that Schell will assign to the Standard floor mat line.

= Material handling + Quality Control + Maintenance

= (37.5 * 30) + (13.86 * 400) + (3 * 4,150)

= $‭19,119‬

3. Determine the amount of overhead Schell will assign to the Deluxe product line.

= Material handling + Quality Control + Maintenance

= (37.5 * 70) + (13.86 * 600) + (3 * 3,000)

= $‭19,941‬