The Chinese Teapot Company manufactures plastic and ceramic teapots. The company's western plant has changed from a labor-intensive operation to a robotics environment. As a result, management is considering changing from a direct-labor based overhead rate to an activity-based cost method. The controller has chosen the following activity cost pools and cost drivers for the factory overhead:
Expected
Overhead
Cost
Cost Driver
Annual
Cost Driver
Purchase orders $300,000 Number of orders 15,000 orders Set-up costs $200,000 Number of set-ups 5,000 set-ups Testing costs $320,000 Number of tests 8,000 tests Machine maintenance $500,000 Machine hours 25,000 hours
REQUIRED:
a. Compute the overhead rate for each cost driver.
b. An order for 50 ceramic teapots had the following requirements:
Number of purchase orders .... 3
Number of set-ups ....... 20
Number of product tests ...... 7Machine hours .......... 150
How much overhead would be assigned to this order?