Exercise 4-3 (Static) Compute ABC Product Costs [LO4-3] Larner Corporation is a diversified manufacturer of industrial goods. The company's activity-based costing system contains the following six activity cost pools and activity rates: Activity Rates $ 7.00 per direct labor-hour $ 3.00 per machine-hour Activity Cost Pool Labor-related Machine-related Machine setups Production orders Shipments $ 40.00 per setup $160.00 per order $ 120.00 per shipment General factory $ 4.00 per direct labor-hour Cost and activity data have been supplied for the following products: Direct materials cost per unit Direct labor cost per unit Number of units produced per year Direct labor-hours Machine-hours Machine setups Production orders Shipments Total Expected Activity J78 1,000 3, 200 5 5 10 B52 40 30 1 1 1 J78 $ 6.50 $ 3.75 4,000 B52 $31.00 $ 6.00 100

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.