Computing overhead rates based on different cost driversGideon Industries produces two sur

Computing overhead rates based on different cost drivers

Gideon Industries produces two surge protectors. VC620 with six outlets and PH630 with eight outlets and two telephone line connections. Because of these product differences, the company plans to use activity-based costing to allocate overhead costs. The company has identified four activity pools.

Relevant information follows.

 

 

Activity Pools

Cost Pool Total

Cost Driver

Machine setup Machine operation Quality control Packaging$120,000

300,000

48,000

32,000Number of setups

Number of machine hours

Number of inspections

Number of units

Total overhead cost

$500,000

 

Expected activity for each product follows.

 

 Number

of SetupsNumber of

Machine HoursNumber

of InspectionsNumber

of Units

VC620

48

1,400

78

25,000

PH630

72

2,600

172

15,000

Total

120

 4,000

250

 40,000

 

Required

a. Compute the overhead rate for each activity pool.

b. Determine the overhead cost allocated to each product.

 

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