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The controller for Tulsa Photographic Supply company has established the following activity cost pool and cost drivers

Activity cost pool budgeted overhead cost

machine setup................. \$250,000
Material handling.............. 75,000
Hazardous waste control........ 25,000
Quality control................ 75,000

Total....................... \$625,000

Cost Driver Budgeted level forcost pool rate
driver

Number of setups.......... 125 \$2,000 per setup
Weight of raw material...... 37,000 lb \$2 per pound
Weight of hazardous........ 5000 lb \$5 per pound
Number of inspection....... 1,000 \$75 per inspection
Machine hours.......... 20,000 \$10 per machine hr

1. Calculate the unit cost of a production order for 100 specially coated plates used in film development. In addition to direct material costing \$120 per plate and direct labor costing \$40 pr plate, the order requires following:

Machine setup........................... 3

Raw material............................. 900 punds

Hazardous materials..................... 300 pounds

Inspection.............................. 3

Machine hours........................... 50

2. Build a spreadsheet: Construct an excel spreadsheet to solve the proceeding requirements. Show how the solution will change if the data given in the prceding problem would change as follows: the overhead associated with machine setup is \$375,000, and there ae 500 inspections budgeted.

#### Solution Summary

Excel file contains calculation of cost of production of specially ordered product using activity based costing (ABC).

\$2.19

## HITEC Manufacturers: Overhead Rate for Each Cost Driver

49. The HITEC Company manufactures multimedia equipment designed to be sold to universities. The company's southeastern plant has undergone production changes that have resulted in decreased usage of direct labor and increased usage of automated processes. As a result, management no longer believes that its overhead allocation method is accurate and is considering changing from a traditional overhead allocation to an activity-based method. The controller has chosen the following activity centers and costs drivers for overhead:

Purchase orders \$200,000
Setup Costs 300,000
Testing costs 420,000
Machine maintenance 800,000

Cost Driver Driver Activity
Number of orders 25,000
Number of setups 15,000
Number of tests 16,000
Machine hours 50,000

Required

A. Calculate the overhead rate each cost driver
B. An order for 1,000 video projectors had the following requirement

Number of purchase orders 3
Number of setups 5
Number of product tests 20
Machine hours 1,500

How much total overhead should be assigned to this order?

What could management do to reduce the overhead costs assigned to these video projectors? What would be the impact on the net income of reducing overhead assigned to the video projectors?

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