The Good Sounds Corp. is attempting to get a better estimate of the cost of their products. As a first step, they are attempting to allocate overhead by defining three activity cost pools and three corresponding cost drivers. The believe that the cost drivers of each of these pools correlate with the costs of that activity pool. The estimated overhead costs and activity are given as follows:
- Activity Cost Driver Estimated OH costs Estimated Activity level
- Supervision Direct Labor $ $60,000 $150,000
- Inspection # Inspections $40,000 2,000
- Machine use Machine hours $400,000 10,000
- Radios CD Players
- Direct Labor $ $120,000 $30,000
- # Inspections 500 1,500
- Machine hours 5,000 5,000
- Radios CD Players
- Direct Material $1,500,000 $500,000
- Direct Labor $120,000 $30,000
- Units produced 20,000 10,000