Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Dining Chairs - Tables - Total cost
Machine setups: 200 - 600 - $48,000
Inspections: 250 - 470 - $72,000
Labor hours: 2,600 - 2,400
A) A single overhead rate:
To calculate the estimated manufacturing overhead rate we need to use the following formula:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= (48,000 + 72,000) / (2,600 + 2,400)= $24 per direct labor hour
Now, we can allocate overhead based on direct labor hours:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Dining Chairs:
Allocated MOH= 24*2,600= $62,400
Tables:
Allocated MOH= 24*2,400= $57,600
B) We have to calculate an overhead rate for each activity cost pool.
<u>Overhead rate:</u>
Machine setups:
Estimated manufacturing overhead rate= 48,000/800= $60 per machine hour set up
Inspections:
Estimated manufacturing overhead rate= 72,000/ 720= $100 per inspection
Based on the overhead rate, we can allocate overhead to each product.
Dining chairs:
Allocated MOH= 60* 200 + 100*250= $37,000
Tables:
Allocated MOH= 60*600 + 100*470= $83,000
C) We can conclude that activity cost allocation is more accurate than using a single rate plant-wide. We can allocate costs more efficiently.
