Overhead Allocation Based on Activity Drivers

Department Details:

• Department A:
  • Direct Costs: $700,000
  • Indirect Costs: $400,000
  • Allocation Base: Direct Labor Hours (DLH)
  • DLH Used: 35,000

• Department B:
  • Direct Costs: $650,000
  • Indirect Costs: $350,000
  • Allocation Base: Machine Hours (MH)
  • MH Used: 30,000

Requirements:

• Allocate overhead costs to Department A and Department B using their respective allocation bases.
• Calculate the total cost for each department.
• Present the overhead allocation in a detailed table format.
• Analyze the impact of overhead allocation on departmental performance.
• Discuss the implications of overhead allocation on product costing and pricing.
• Evaluate the effectiveness of different overhead allocation methods.