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Chapter 19: Q.19-4SE_1 (page 1064)

Bubba and Danny are college friends planning a skiing trip to Killington before the New Year. They estimated the following for the trip:

Estimated Activity Allocation

Costs Allocation Base Bubba Danny

Food \( 400 Pounds of food eaten 24 26

Skiing 300 Number of lift tickets 2 0

Lodging 280 Number of nights 2 2

\) 980

Requirements

1. Bubba suggests that the costs be shared equally. Calculate the amount each person would pay.

Short Answer

Expert verified

Each person should pay $490.

Step by step solution

01

Overhead allocation

Overhead allocation is the apportionment of cost to each activity or process or person based on a certain ratio. This ratio can be allocation base or can be in any predetermined ratio.

In costing, overhead allocation is important to get the appropriate amount of full cost and to determine the price.

02

Allocation of overhead in the given case

As given, Bubba suggests sharing the coat equally. So the total amount would be shared in the ratio of 1:2 to each person.

costforeachperson=totalcost2=$9802=$490

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Most popular questions from this chapter

Koehler makes handheld calculators in two models: basic and professional. Koehler estimated $721,000 of manufacturing overhead and 515,000 machine hours for the year. The basic model actually consumed 230,000 machine hours, and the professional model consumed 285,000 machine hours.

Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base. How much overhead is allocated to the basic model? To the professional model?

Activity-based costing requires four steps. List the four steps in the order they are performed.

Refer to Exercise E19-20. For 2019, Eason’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based n costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company’s standard and deluxe models for 2019:

Standard Deluxe

Sales price \( 800.00 \) 940.00

Direct materials 31.00 48.00

Direct labor 45.00 52.00

Because of limited machine hour capacity, Eason can produce either2,000 standard rims or2,000 deluxe rims.

Requirements

2. If the managers rely on the single plantwide overhead allocation rate cost data, which model will they produce?

How is the Conversion Costs account used in JIT costing?

Harcourt Pharmaceuticals manufactures an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity Estimated Estimated Quantity

Indirect Cost Allocation Base of Allocation Base

Materials handling \( 96,000 Number of kilos 24,000 kilos

Packaging 210,000 Number of machine hours 3,000 hours

Quality assurance 114,000 Number of samples 1,900 samples

Total indirect costs \) 420,000

Other production information includes the following:

Commercial Containers Travel Packs

Units produced 2,800 containers 51,000 packs

Weight in kilos 9,800 5,100

Machine hours 1,960 510

Number of samples 560 765

Requirements

1. Harcourt’s original single plantwide overhead allocation rate system allocated indirect costs to products at $140.00 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product. Round to two decimal places.
See all solutions

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