Question

A company has two products: Cakes and Cookies. It uses activity-based costing and has prepared the following analysis showing budgeted costs and activities. Use this information to compute (a) the company's overhead rates for each of the three activities and (b) the amount of overhead allocated to Cakes.

Answer 1

Answer and Explanation:

The computation is shown below:

a. Overhead rate for each of the three activities is

For activity 1

= $60,000 ÷1500

= $40

For activity 2

= $75,000 ÷ 3,000

= $25

For activity 3

= $90,000 ÷ 1,700

= $53

b. The amount of overhead allocated is

= 40 ×700 + 25 × 1500 + 800 × 53

= $28,000 + $37,500 + $42,400

= $107,900