Problem
Swimmer manufactures and sells professional and amateur grade goggles to various retail outlets. To better estimate costs, the company recently adopted an activity-based costing system. Last year, the company incurred $1,000 in overhead costs. Based on an intense study of their company, the following activities, allocation bases, and percentages of overhead costs were determined:
|
Activity
|
Allocation Base
|
Proportion of Overhead Cost
|
|
Purchasing
|
Number of purchase orders
|
30%
|
|
Inspections
|
Number of inspections
|
45%
|
|
Sales
|
Number of sales orders
|
25%
|
The number of activities for professional and amateur grade goggles is as follows:
|
Professional
|
Amateur
|
|
Number of purchase orders
|
3,000
|
7,000
|
|
Number of inspections
|
1,500
|
3,500
|
|
Number of sales orders
|
200
|
800
|
Required:
A. Calculate the total overhead that should be allocated to each of the three activities.
B. Calculate the overhead rates for each of the three activities.
C. If a single sales order requires 40 purchase orders and 30 inspections to fill, how much overhead should be applied to the order?