E$19-17$ Computing and using activity$-$based costing overhead allocation rates

Learning Objectives $2,3$

$1.$ Total MOH Basic $$256,000$

Koehler $($see Exercise E$19-15$ and Exercise E$19-16)$ makes handheld calculators in two models$$basic and professional$$and wants to further refine its costing system by allocating overhead using activity$-$based costing. The estimated $$721,000$ of manufacturing overhead has been divided into three primary activities: Materials Handling, Machine Setup, and Insertion of Parts. The following data have been compiled:

Materials Handling Machine Setup Insertion of Parts Total

Overhead costs $ $45,000$ $ $136,000$ $ $540,000$ $ $721,000$

Allocation base Number of parts Number of setups Number of parts

Expected usage:

Basic Model $32$ parts per calculator $24$ setups per year $32$ parts per calculator

Professional Model $58$ parts per calculator $44$ setups per year $58$ parts per calculator

Requirement $1$

Koehler expects to produce $200,000$ basic models and $200,000$ professional models. Compute the predetermined overhead allocation rates using activity$-$based costing. How much overhead is allocated to the basic model? To the professional model?

Requirement $2$

Compare your answers for Exercise E$19-15,$ Exercise E$19-16,$ and Exercise E$19-17.$ What conclusions can you draw?