Calculate the amount of factory overhead to be allocated to

Calculate the amount of factory overhead to be allocated to each unit using activity based costing. The factory plans to produce 60,000 handbags, and 40,000 moccasins. Round your answers to two decimal places, if necessary.

$ per unit

Handbags:	$ per unit
Moccasins:	$ per unit

Solution

WN-1 Calculation of Overhead Recovery rate in Activity Based Costing

Particular

Cutting

Sewing

Set-Ups

QC Inspections

Purchase Orders

Cost (a)

40,000

210,000

80,000

20,000

10,000

Activity (b) Levels

100,000

140,000

800

1000

400

Cost Driver

Direct Labour hours

Direct Labour hours

Number of set ups

Number of inspections

Number of purchase orders

Activity Based Overhead rates (a/b)

0.40

1.50

100

20

25

Overhead Cost Per unit

Particular

Hand Bags

Moccasins

Cutting Department Cost

(0.40 x 60,000)

24,000

24,000

Sewing Department Cost

90,000

120,000

Set Ups Cost

50,000

30,000

QC Inspection cost

4,000

16,000

Purchase Order Cost

2,500

7,500

Total Overhead (a)

170,500

189,500

Number of Units (b)

60,000

40,000

Overhead Cost per unit

$2.84

$4.74

Particular	Cutting	Sewing	Set-Ups	QC Inspections	Purchase Orders
Cost (a)	40,000	210,000	80,000	20,000	10,000
Activity (b) Levels	100,000	140,000	800	1000	400
Cost Driver	Direct Labour hours	Direct Labour hours	Number of set ups	Number of inspections	Number of purchase orders
Activity Based Overhead rates (a/b)	0.40	1.50	100	20	25