Chapter 5, Problem 52P

The controller for Tulsa Medical Supply Company has established the following activity cost pools and cost drivers.

An order for 1,000 boxes of medical-testing agent has the following production requirements.

Required:

1. 1. Compute the total overhead that should be assigned to the medical-testing agent order.
2. 2. What is the overhead cost per box of testing agent?
3. 3. Suppose Tulsa Medical Supply Company were to use a single predetermined overhead rate based on machine hours. Compute the rate per hour.
4. 4. Under the approach in requirement (3), how much overhead would be assigned to the medical-testing agent order?
   1. a.      In total.
   2. b.      Per box of testing agent.
5. 5. Explain why these two product-costing systems result in such widely differing costs. Which system do you recommend? Why?
6. 6. Build a spreadsheet: Construct an Excel spreadsheet to solve requirements (1), (2), (3), and (4) above. Show how the solution will change if the following data change. The overhead associated with machine setups is $375,000, and there are 500 inspections budgeted.