FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:**Analysis of Overhead Costs by James Smith**
James Smith has been assessing the profitability reports of his department for the last six months. After completing a managerial accounting course, he is scrutinizing the company's method of allocating overhead to products based solely on machine hours. The department currently works with an overhead budget of $602,500, derived from 30,125 machine hours. In his preliminary analysis, James has identified distinct activity cost pools, as detailed below:
| **Cost Pool** | **Expected Cost** | **Expected Activities** |
|-------------------------------|-------------------|----------------------------|
| Product assembly | $340,000 | 34,000 machine hours |
| Machine setup and calibration | $175,000 | 3,500 setups |
| Product inspection | $37,500 | 1,250 batches |
| Raw materials storage | $50,000 | 200,000 pounds |
**Total**: **$602,500**
This table categorizes overhead costs into four primary areas and assigns expected costs and activities to each, offering a more nuanced view of how resources are utilized in production.
![**Overhead Rate Calculations**
(a) **Traditional Overhead Rate Calculation**
Calculate the company's traditional overhead rate based on machine hours.
- **Overhead rate:** $ [Input field] / MH
(b) **Activity-Based Costing Overhead Rates Calculation**
Calculate the company's overhead rates using the proposed activity-based costing pools. (Round answers to 2 decimal places, e.g., 15.25.)
- **Product assembly:** $ [Input field] / MH
- **Machine setup and calibration:** $ [Input field] / setup
- **Product inspection:** $ [Input field] / batch
- **Raw materials storage:** $ [Input field] / lb](https://content.bartleby.com/qna-images/question/8ad87420-52d2-4e34-815e-eb9bcb5c95c0/6c64ea92-d7ae-4a36-96ba-7537b6b342e1/qffgs6l_processed.png)
Transcribed Image Text:**Overhead Rate Calculations**
(a) **Traditional Overhead Rate Calculation**
Calculate the company's traditional overhead rate based on machine hours.
- **Overhead rate:** $ [Input field] / MH
(b) **Activity-Based Costing Overhead Rates Calculation**
Calculate the company's overhead rates using the proposed activity-based costing pools. (Round answers to 2 decimal places, e.g., 15.25.)
- **Product assembly:** $ [Input field] / MH
- **Machine setup and calibration:** $ [Input field] / setup
- **Product inspection:** $ [Input field] / batch
- **Raw materials storage:** $ [Input field] / lb
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