Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based
costing system contains the following six activity cost pools and activity rates:
Activity Cost Pool Activity Rates
Supporting direct labor $10.00 per direct labor-hour
Machine processing $3.00 per machine-hour
Machine setups $50.00 per setup
Production orders $160.00 per order
Shipments $115.00 per shipment
Product sustaining $775.00 per product
Activity data have been supplied for the following two products:
Total Expected Activity
K425 M67
Number of units produced per year 200 2,000
Direct labor-hours 1,025 30
Machine-hours 2,200 20
Machine setups 7 1
Production orders 7 1
Shipments 14 1
Product sustaining 1 1
Required:
1. Determine the total overhead cost that would be assigned to each of the products listed above in the activity-based costing system.
Activity Cost Pool K425 M67
Supporting Direct Labor
Machine Processing
Machine Setups
Production Orders
Shipments
Product Sustaining
Total Overhead Cost

K425 = $20, 705

M67 = $1, 460

Explanation:

Overhead costs are costs on the income statement that exclude direct labor, direct materials and any other direct expenses. These costs are costs that are incurred indirectly, but are necessary for production. These include any advertising, insurance, rent, maintenance, repairs, telephone bills, supplies, utilities, taxes, etc.

Determine the total overhead cost that would be assigned to each of the products listed above in the activity-based costing system.

Activity Cost Pool      K425  M67

Supporting direct labor   ($)       10, 250  ($)300

Machine processing                6, 600  60

Machine set-ups       350  50

Production orders           1, 120  160

Shipments            1, 610  115

Product sustaining       775  775

Total overhead cost      20, 705  1, 460

Below are the workings for each product, to determine how we arrive at each amount.

Activity cost pool      Activity rate  Activity  ABC cost ($)

K425

Supporting direct labor  $10 per direct labor hour1, 025  10, 250

Machine processing    $3 per machine hour  2, 200  6, 600  

Machine set-ups  $50 per set-up  7  350

Production orders  $160 per order  7  1, 120

Shipments  $115 per shipment        14  1, 610

Product sustaining  $775 per product         1  775

Total Overhead cost        20, 705

Activity cost pool           Activity rate       Activity  ABC cost ($)

M67

Supporting direct labor   $10 per direct labor hour30  300

Machine processing   $3 per machine hour  20  60

Machine set-ups    $50 per set-up  1  50

Production orders    $160 per order  1  160

Shipments     $115 per shipment  1  115

Product sustaining    $775 per product          1  775

Total Overhead cost        1, 460

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30