Exercise 5-6B
Computing overhead rates based on different costing drivers
Fenya Industries produces two surge protectors: K2761 with
six outlets and D3354 with eight outlets and two telephone line connections.
Because of these product differences, the company plans to use activity-based
costing to allocate overhead costs. The company has identified four activity
pools.
Activity Pools Cost
Pool Total Cost Driver
Machine setup $144,000
Number of
setups
Machine operation 360,000 Number
of machine hours
Quality control 57,600 Number
of inspections
Packaging 38,400 Number
of units
Total overhead cost $600,000
Expected activity for each product follows:
Number
Number of Number Number
of Setups Machine Hours of Inspections of Units
K2761 48 1,400
78 25,000
D3354 72
2,600
172 15,000
Total 120 4,000 250 40,000
Required
a. Compute the
overhead rate for each activity pool.
b. Determine the
overhead cost allocated to each product.
