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    Indirect cost allocation

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    Outdoor Sports, Inc., produces two types of skis, downhill skis and cross country skis. Product and production information about the two items is show below (see the attachment)

    1) Outdoor Sports uses the traditional two-stage method of allocating overhead costs based on direct labor hours, what is the amount of indirect costs per set of skis for each of the two tpes of skis?

    2) If Outdoor Sports uses activity based costing, what is the total mount of indirect costs per set of skis for each of the two types of skis? Assume that depreciation is allocated based on machine hours, setup costs based on the number of setups, and miscellaneous costs based on the number of direct labor hours.

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    Solution Summary

    The solution explains how to allocate the indirect costs using traditional costing and activity based costing