Cost driver under traditional costing system


Task: The controller for Ocean Sailboats Inc., a company which uses an automated process to make sailboats, established the following overhead cost pools and cost drivers:

Budgeted Estimated

Overhead Cost Pool Overhead Cost Driver Cost Driver Level
Machine setups $250,500 # of setups 500 setups
Quality control 419,500 # of inspections 2,500 inspections
Other overhead cost 180,000 # of machine hrs 20,000 machine hrs

A recent order for sailboats used:

Machine setups 50 setups
Quality inspections 305 inspections
Machine hours 2,024 machine hours

Required:

(1) What is the overhead rate per machine hour if the number of machine hours is used as a single cost driver under traditional costing system?

(2) Utilizing traditional costing, how much overhead is assigned to the order based on machine hours as a single cost driver?

(3) Utilizing ABC, how much total overhead is assigned to the order?

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Accounting Basics: Cost driver under traditional costing system
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