Last Updated 26 Jan 2021

Accounting: Cost Calculations

Category Accounting
Essay type Research
Words 388 (1 page)
Views 194

Ken's Carpets sells carpet for both residential and business use. To better estimate costs, the company recently adopted an activity-based costing system. Last year, the company incurred $300,000 in overhead costs. Based on an intense study of their company, the following activities, allocation bases, and percentages of overhead costs were determined:

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The Proportion of Overhead Cost Activity Allocation Base
25% Purchasing Number of purchase orders
50% Materials processing Number of square feet
25% Sales Number of sales orders

The number of activities for residential and business is as follows:

Business - Residential - Total Total Overhead
500 - 700 Number of purchase orders 1,200 75,000
2,000,000 - 4,000,000 Number of square feet 6,000,000 150,000
100 - 400 Number of sales orders 500 75,000

 

Required:  -  -
A. Calculate the total overhead that should be allocated to each of the three activities
 - Number of Purchase $75,000
 - Number of square feet $150,000
 - Number of sales orders $75,000.
B. Calculate the overhead rates for each of the three activities.
 - Number of purchase 62. 5
 - Number of square feet 0. 025
 - Number of sales orders 150
C. If a particular residential job requires 4 purchase orders and 1 sales order for total of 1,500 square feet of carpet, how much overhead should be allocated to the job?
 - 4*62. 5 + 0. 025*1,500+1*150 = $437. 50

2. Mountaineer Tents manufactures and sells heavy and light-duty tents to various outdoor retailers. To better estimate costs, the company recently adopted an activity-based costing system.

Last year, the company incurred $900,000 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 The Proportion of Overhead Cost
Purchasing Number of purchase orders 55%
Inspections Number of inspections 20%
Sales Number of sales orders 25%

 

The number of activities for heavy and light duty tents is as follows: Heavy-duty Light-duty
Number of purchase orders 5,000 4,000
Number of inspections 3,000 1,000
Number of sales orders 800 400

 

Required:  -  -
A.  Calculate the total overhead that should be allocated to each of the three activities
 - Number of purchase  4,950
 - Number of inspection 800
 - Number of sales 300
B.  Calculate the overhead rates for each of the three activities.
 - Number of purchase 1. 82
 - Number of inspection 5
 - Number of sales 4
C. If a single sales order requires 10 purchase orders and 30 inspections to fill, how much overhead should be applied to the order?
 - 1*4+10*1. 82+30*5 = 191. 82

3. The following overhead cost information is available for Millennium Inc. for 2006:

Activity Allocation Base Overhead Cost
Purchasing Number of purchase orders $300,000
Machine setups Number of setups 150,000
Quality control Number of inspections 50,000

During the year, 4,000 purchase orders were issued; 8,000 machine setups were performed, and 2,000 inspections were conducted.

Required:  -  -
A. Calculate the overhead rates for each of the three activities
 - Purchasing 75. 00
 - Machine Setups 800 18.75
 - Quality Control 25
B. If a particular job requires 10 purchase orders, 6 setups, and 5 inspections to fill, how much overhead should be applied to the job?
 - 10*75+6*18. 75+25*5 = 987. 5

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