Given Information:
Disc allocates the following:
Kitting costs based on the number of parts used in the computer
Boxing costs based on the cubic feet of space the computer requires
Suppose Disc estimates it will use 300,000,000 parts per month and ship products with a total volume of 35,000,000 cubic feet per month. Assume that each desktop computer requires 175 parts and has a volume of 5 cubic feet. The predetermined overhead allocation rate for kitting is $0.03 per part and the predetermined overhead allocation rate for boxing is $0.60 per cubic foot.
Solution:
<u>Compute the activity rate as shown below:</u>
Activity Driver Total cost Cost drivers(a) Activity rate(a/b)
Kitting No. of parts $10,000,000 300,000,000 0.03
Boxing Cubic feet $13,000,000 35,000,000 0.37
<u>Compute the kitting and boxing costs assigned to one desktop computer as shown below :</u>
<u />
Kitting cost assigned to one desktop = $0.03 * 175
= $ 5.25 per desktop computer
Boxing cost assigned to one desktop = $0.37 * 5
= $ 1.85 per desktop
