Question

Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2100 units, while 1600 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $149,315. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:
Expected activity
Estimated
Activity cost Overhead
pool cost Toasters Blenders Total
Setup costs $8,585 215 batches 450 batches 665 batches
Engineering costs $73,980 870 engineering 820 engineering 1,690 engineering
hours hours
Maintenance costs $66,750 2,7250 direct 1,195 direct 3,945 direct
labor hours labor hours labor hours
Total $149,315
The overhead cost per Blenders using the traditional costing system would be closest to:____.
A. $28.27.
B. $37.85.
C. $93.32.
D. $19.40.

Answer 1

Answer:

a. Overhead cost per blender = $28.27

Explanation:

Overhead rate = $149,315 / 3,945

Overhead rate = $37.85

Overhead cost per blender = (Blender Direct labor hours * Overhead rate) / Units of blunder Produced and sold

Overhead cost per blender = (1,195 * $37.85) / 1,600

Overhead cost per blender = $45,230.75 / 1,600

Overhead cost per blender = $28.27