### Overhead Cost Analysis for Ocean Sailboats IncorporatedOcean Sailboats Incorporated has established the following overhead cost pools and cost drivers as part of its automated sailboat manufacturing process:#### Overhead Cost Pools and Drivers| Overhead Cost Pool | Budgeted Overhead | Cost Driver | Estimated Cost Driver Level ||---------------------|------------------|----------------------------|-----------------------------|| Machine setups | $250,500 | Number of setups | 500 setups || Quality control | $419,500 | Number of inspections | 2,500 inspections || Other overhead cost | $180,000 | Number of machine hours | 20,000 machine hours |#### Recent Order Details**Order Specifications:**- **Machine setups:** 50 setups- **Quality inspections:** 305 inspections- **Machine hours:** 2,024 machine hours#### Tasks and Calculations Required1. **Calculate Overhead Rate per Machine Hour:** - Determine the overhead rate considering machine hours as a single cost driver within the traditional costing system.2. **Traditional Costing System:** - Calculate the overhead assigned to the order using machine hours as the sole cost driver.3. **Activity-Based Costing (ABC) System:** - Calculate the total overhead assigned to the order using the ABC method, distributing costs based on all relevant activities. This analysis assists in understanding how both traditional costing and activity-based costing (ABC) can affect cost assignments and overall business finance strategy.

Calculation of activity rates : Machine set-ups = Budgeted overhead cost Number of set-ups = $250,500500 setups = $501 per setups Quality inspections = Budgeted overhead cost Number of inspections = $419,5002,500 inspections = $167.8 per inspections Other overhead cost = Budgeted overhead cost Number of machine hours = $180,00020,000 machine hours = $9 per machine hour Overhead rate = Budgeted ovehead costNumber of machine hours = $250,500 + $419,500 + $180,00020,000 machine hours = $42.5 per machine hour Overhead assigned to order = 2,024 machine hours x $42.5 per machine hour = $86,020Calculation of total overhead cost assigned to order : Particulars Amount Machine setup cost ( 50 setups x $501 per setups ) $25,050 Quality inspections cost ( 305 inspections x $167.8 per inspections ) $51,179 Other overhead cost ( 2,024 machine hours x $9 per machine hour ) $18,216 Total overhead cost assigned to order $94,445

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The controller for Ocean Sailboats Incorporated, a company which uses an automated process to make sailboats, established the following overhead cost pools and cost drivers: Overhead Cost Pool Machine setups Quality control Other overhead cost Budgeted Overhead $ 250,500 419,500 180,000 Cost Driver Estimated Cost Driver Level Number of setups Number of inspections 500 setups 2,500 inspections 20,000 machine hours Number of machine hours A recent order for sailboats used: Machine setups 50 setups 305 inspections 2,024 machine hours Quality inspections Machine hours Required: 1. What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? 2. Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver? 3. Utilizing ABC, how much total overhead is assigned to the order?

The controller for Ocean Sailboats Incorporated, a company which uses an automated process to make sailboats, established the following overhead cost pools and cost drivers: Overhead Cost Pool Machine setups Quality control Other overhead cost Budgeted Overhead $ 250,500 419,500 180,000 Cost Driver Estimated Cost Driver Level Number of setups Number of inspections 500 setups 2,500 inspections 20,000 machine hours Number of machine hours A recent order for sailboats used: Machine setups 50 setups 305 inspections 2,024 machine hours Quality inspections Machine hours Required: 1. What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system? 2. Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver? 3. Utilizing ABC, how much total overhead is assigned to the order?

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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