Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the following: Direct labor costs Machine hours Setup hours Packaging hours Machining Machine set up Packaging Family Model $76,200 2,000 200 The estimated overhead of $457,200 is allocated as follows: machining activity cost pool $243,840, machine set up $172,720 and packaging $40,640. S 50 Determine the overhead rates using the activity-based costing approach with three cost pools. (Round answers to 2 decimal places, eg. 15.25.) $ Deluxe Model $152,400 2,000 800 75 Overhead Rate 60.96 per hour 172.72 per hour 325.12 per hour

Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the following: Direct labor costs Machine hours Setup hours Packaging hours Machining Machine set up Packaging Family Model $76,200 2,000 200 The estimated overhead of $457,200 is allocated as follows: machining activity cost pool $243,840, machine set up $172,720 and packaging $40,640. S 50 Determine the overhead rates using the activity-based costing approach with three cost pools. (Round answers to 2 decimal places, eg. 15.25.) $ Deluxe Model $152,400 2,000 800 75 Overhead Rate 60.96 per hour 172.72 per hour 325.12 per hour

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 7CE

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Concept explainers

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.

Question

Please do not give solution in image format thanku

Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the
controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the
following:
4
Direct labor costs
Machine hours
Setup hours
Packaging hours
Machining
Machine set up
Packaging
Family Model
$76,200
2,000
$
200
$
50
Deluxe Model
The estimated overhead of $457,200 is allocated as follows: machining activity cost pool $243,840, machine set up $172,720 and
packaging $40,640.
$152,400
Determine the overhead rates using the activity-based costing approach with three cost pools. (Round answers to 2 decimal places,
eg. 15.25.)
2,000
Overhead Rate
800
75
325.12
60.96 per hour
172.72 per hour
per hour

Determine the overhead allocation for the family model and the deluxe model using three activity cost pools.
Family model $
Deluxe model $
What is the difference in allocation between two activity cost pools and three activity cost pools? Is the difference in allocation
worth using the third activity cost pool?
Difference
Oerhead Allocation
$
Save for Later
The additional cost pool
does not benefit
benefit
the overhead cost allocation significantly.
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