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15 May, 20:43

PA11.

LO 6.4Lampierre makes brass and gold frames. The company computed this information to decide whether to switch from the traditional allocation method to ABC:

The estimated overhead for the material cost pool is estimated as $12,500, and the estimate for the machine setup pool is $35,000. Calculate the allocation rate per unit of brass and per unit of gold using:

The traditional allocation method

The activity-based costing method

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  1. 15 May, 21:39
    0
    Using Traditional allocation method

    Allocation rate per unit

    = Budgeted overhead

    Budgeted direct labour hours

    Brass

    Overhead allocation rate

    = $47,500

    700 hours

    = $67.86 per direct labour hour

    Gold

    = $47,500

    1,200 hours

    = $39.58 per direct labour hour

    Using activity-based costing

    Brass

    Allocation rate for material cost pool

    = $12,500

    400

    = $31.25 per material moved

    Gold

    Allocation rate for material cost pool

    = $12,500

    100

    = $125 per material moved

    Brass

    Allocation rate for machine set-up pool

    = $35,000

    400

    = $87.50

    Gold

    Allocation rate for machine set-up pool

    = $35,000

    600

    = $58.33

    Explanation:

    Using traditional allocation method, the overheads for material cost pool and machine set-up pool will be added. The overhead allocation rate per unit is the division of total overhead by the direct labour hours for each product.

    Using activity-based costing, the material cost pool overhead will be divided by the material moved for each product in order to obtain allocation rate for each product.

    The allocation rate for machine set-up pool is obtained by dividing the machine set-up overhead by the number of machine set-up for each product.
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