A lawn mower manufacturer makes two models: the 'Standard' and the 'Enviro'. The factory currently utilises a
Question:
A lawn mower manufacturer makes two models: the 'Standard' and the 'Enviro'. The factory currently utilises a factory-wide overhead allocation rate based on Direct Labour Hours with budgeted overhead for the year of $6,000,000. Budgeted production of mowers is 730,000 Standard model and 170,000 Enviro model. The business is considering adopting an Activity-Based Costing approach to overhead allocation and the budgeted useage and cost of each activity is detailed below.
OH Activity
OH Cost
Cost Driver
Amount of Cost Driver
Standard
Enviro
Set Ups
$700,000
Number of Set ups
20
50
Laser Cutter
$600,000
Machine Hours
50,000
10,000
Machining
$1,800,000
Machine Hours
60,000
35,000
Assembly
$1,400,000
Labour Hours
40,000
20,000
Packing
$1,500,000
Number of Orders
200
500
Using the existing factory-wide approach to overhead allocation, calculate the amount of overhead allocated to the Standard Model (round answer to nearest $1).
Cost Management Measuring Monitoring And Motivating Performance
ISBN: 9781118168875
2nd Canadian Edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook