Last Updated 26 Jan 2021

# Accounting: Cost Calculations

Category Accounting
Words 464 (2 pages)
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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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