Isadore's Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data: Cost Driver Volume Pencils Activity Setting up Inspecting Packing and shipping Cost Driver Number of setups Number of parts Number of boxes shipped Cost $109,200 36,300 60,000 $205,500 Pens 29 23 4 55,000 65,000 Total overhead Required: a. Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.) Overhead Pencils Pens b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.2 for pencils and 0.2 for pens and that 55,000 boxes of pencils and 65,000 boxes of pens were produced during the period. (Do not round intermediate calculations.) Overhead Pencils Pens

Isadore's Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data: Cost Driver Volume Pencils Activity Setting up Inspecting Packing and shipping Cost Driver Number of setups Number of parts Number of boxes shipped Cost $109,200 36,300 60,000 $205,500 Pens 29 23 4 55,000 65,000 Total overhead Required: a. Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.) Overhead Pencils Pens b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.2 for pencils and 0.2 for pens and that 55,000 boxes of pencils and 65,000 boxes of pens were produced during the period. (Do not round intermediate calculations.) Overhead Pencils Pens

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Hades Inc. manufactures pens and mechanical pencils used for gifts. Overhead costs are currently allocated using direct labor hours, but the controller has recommended an activity based costing using the following data: ACTIVITY COST DRIVER COST COST DRIVER VOLUME Pencils Pens Setting-up No. of setups $ 72,000 20 30 Inspecting No. of parts 21,600 4 6 Packing and Shipping No. of boxes shipped 43,200 45,000 75,000 TOTAL OVERHEAD $136,800 REQUIRED: Compute the overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of hours required to assemble each box is .1 for pencil and .2 for pens and that 45,000 boxes and 75,000 boxes were produced for the pencils and pens, respectively. Compute the overhead to be allocated to each product using activity based costing Should the company follow the controller’s recommendation?
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