Foster Company has determined a raw materials cost of $0.10 perpound; their loaded labor rate is $15 per hour. The Controller forFoster Company has established the following overhead cost poolsand cost drivers:
Overhead Cost Pool
Budgeted
Overhead Cost
Cost Driver
Machine setups
$150,000
Number of setups
Material handling
52,500
Pounds of raw material
Quality control inspection
37,500
Number of inspections
Other overhead costs
90,000
Machine hours
Total
$330,000
Overhead Cost Pool
Budgeted Level
for Cost Driver
Compute ABC Overhead Rate
Machine setups
100 setups
Material handling
50,000 pounds
Quality control
1,000 inspections
Other overhead
15,000 machine hours
Order no. 610 has been received for 1,000 units of product. Ithas the following production requirements:
Direct Labor
20 hours
Machine setups
5 setups
Raw material
10,000 pounds
Inspections
12 inspections
Machine hours
600 machine hours
Required:
A. Compute the activity-based costing (ABC) rates for each ofthe four cost drivers; write answers in the table above. (4points)
B. Compute the total overhead that should be assigned to orderno. 610 by using activity-based costing. (4 points)
C. Suppose that Foster were to use a single, predeterminedoverhead rate based on machine hours. Compute the rate per hour andthe total overhead assigned to order no. 610. (4 points)
D. Compute the total product cost of one unitfor order no. 610, using activity-based costing rates. (4points
Foster Company has determined a raw materials cost of $0.10 perpound; their loaded labor rate is $15 per hour. The Controller forFoster Company has established the following overhead cost poolsand cost drivers:
Overhead Cost Pool | Budgeted Overhead Cost | Cost Driver |
Machine setups | $150,000 | Number of setups |
Material handling | 52,500 | Pounds of raw material |
Quality control inspection | 37,500 | Number of inspections |
Other overhead costs | 90,000 | Machine hours |
Total | $330,000 | |
Overhead Cost Pool | Budgeted Level for Cost Driver | Compute ABC Overhead Rate |
Machine setups | 100 setups | |
Material handling | 50,000 pounds | |
Quality control | 1,000 inspections | |
Other overhead | 15,000 machine hours | |
Order no. 610 has been received for 1,000 units of product. Ithas the following production requirements: | ||
Direct Labor | 20 hours | |
Machine setups | 5 setups | |
Raw material | 10,000 pounds | |
Inspections | 12 inspections | |
Machine hours | 600 machine hours | |
Required:
A. Compute the activity-based costing (ABC) rates for each ofthe four cost drivers; write answers in the table above. (4points)
B. Compute the total overhead that should be assigned to orderno. 610 by using activity-based costing. (4 points)
C. Suppose that Foster were to use a single, predeterminedoverhead rate based on machine hours. Compute the rate per hour andthe total overhead assigned to order no. 610. (4 points)
D. Compute the total product cost of one unitfor order no. 610, using activity-based costing rates. (4points
Related questions
The California Cooking Oil Company (CCO) has been using machine-hours as the basis to determine overhead costs for all products. an ABC project team points out that the firm manufactures several products, each of which use signifacntly different factory supporting resources. As a start, the team suggests the following overheadcost pools,cost drivers, and estimated cost driver levels for manufacturing overheads:
| Overhead cost pool | Cost Driver | Estimated cost driver level | Budgeted overhead |
| Machine setup | Number of setups | 100 | R 100 000 |
| Materials Handling | Number of barrels | 800 | R 80 000 |
| Quality Control | Number of inspections | 1000 | R 200 000 |
| Other Overhead Cost | machine-Hours | 10 000 | R100 000 |
CCO has recently completed production of 500 barrels each of P5 and G23. P5 is a cornbased oil distributed primarily through supermarkets . G23 is made from olive oil, flaxseed oil, and other exotic ingredients and sold up to scale restaurants as a gourment food. the production require the following operations:
| Overhead cost pool | Number of cost drivers | Number of cost drivers |
| P5 | G23 | |
| Machine setups | 1 set up | 50 set up |
| materials handling | 500 barrels | 500 barrels |
| Quality Inspections | 2 times | 20 times |
| Machine hours | 1000 hours | 1000 hours |
Required:
1. Determine the overhead costs per barrel of P5 and G23 using the current single cost driver system based on machine hours
2. determine the overhead costs per barrel of P5 and G23 using the multiple cost driversystem suggested by the ABC project team.
3. Critically discuss if the choice of costing system can be important competetive factor of CCO. How can the costing system help firm become more profitable and competitive?
