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 Line Material handling Number of moves $ 2,304.00 45 moves 51 moves Quality control Number of inspections $ 8,060.00 550 inspections 690 inspections Machine maintenance Number of machine hours $ 13,433.00 3,060 machine hours 4,010 machine hours Required: 1. Calculate the activity rates for each cost pool assuming Schell uses an ABC system. 2. 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:

The correct answer for option (1) is $24 per material move, $6.5 per Inspection, $1.9 per Machine-Hour, for option (2) is $10,469, and for option (3) is $13,328.

Explanation:

According to the scenario, the following calculation can be done as follows:

(1) Activity rates:

Material Handling = $2,304 ÷ ( 45 + 51 ) = $24 per material move

Quality control  = $8,060 ÷ (550 + 690 ) = $6.5 per Inspection

Machine maintenance = $13,433 ÷ ( 3,060 + 4,010 ) = $1.9 per Machine-Hour.

(2) Factory overhead cost:

Standard:

Overhead total costs: (45 × $24) + (550 × $6.5) + (3,060 × $1.9)

= (1,080 + 3,575 + 5,814) = $10,469

(3) Deluxe:

Overhead total costs: (51 × $24) + (690 × $6.5) + (4010 × $1.9)

=  ( 1,224 + 4,485 + 7,619)   = $13,328