Question

Fey Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled.
Number of Number of Number of

Product Setups Components Direct Labor Hours

Standard 22 8 375

Deluxe 28 12 225

Overhead costs $20,000 $40,000

Assume a traditional single-rate costing system applies the total $120,000 of overhead costs based on direct labor hours. What is the total amount of overhead costs assigned to the standard model and how would that be journalized? (2 points)

Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the number of setups amount of overhead costs assigned to the deluxe model? (2 points)

Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead costs assigned to the deluxe model and how would that be journalized? (3 points)

Answer 1

Answer:

a) Standard WIP      75,000 debit

            factory overhead       75,000 credit

b) applied to deluxe model 28 setups x $   400 = $ 11,200

c) total overhead to deluxe: 35,200

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

expected overhead:       120,000

total labor hours: 375 + 22 = 600

overhead rate: 120,000 / 600 = 200

applied to Standard model: 375 hours x $ 200 = 75,000

overhead cost for setups: $ 20,000

total setups (cost driver) 22  + 28

activity rate: $ 20,000 / 50 setups = $    400

applied to deluxe model 28 setups x $   400 = $ 11,200

overhead cost for component: $40,000

total components: 8 + 12 = 20

activity rate: 40,000 / 20= 2,000

applied to deluxe model: 12 x 2,000 = 24,000

Overhead cost into deluxe model under ABC:

setup overhead applied to deluxe model 28 setups x $   400 = $ 11,200

component overhead applied to deluxe model: 12 x 2,000 = 24,000

Total: 35,200