PB5.

LO 6.3Wrappers Tape makes two products: Simple and Removable. It estimates it will produce 369,991 units of Simple and 146,100 of Removable, and the overhead for each of its cost pools is as follows:

It has also estimated the activities for each cost driver as follows:

How much is the overhead allocated to each unit of Simple and Removable?

Calculation of cost driver rates

Material receipts = $249,975/750 = $333.30 per requisition

Machine set-up = $150,000/200 set-ups = $750.00 per set-up

Assembly = $450,000/300 parts = $1,500 per part

Machine maintenance = $175,000/3,500 hours = $50 per machine hour

Calculation of overhead allocated to each unit of products

Material receipts

Simple = $333.30 x 300

369,991 units

= $0.27 per unit

Removable = $333.33 x 450

146,100 units

= $1.03 per unit

Machine set-up

Simple = $750 x 150 set-ups

369,991 units

= $0.30 per unit

Removable = $750 x 50 set-ups

146,100 units

= $0.26

Assembly

Simple = $1,500 x 100 parts

369,991 units

= $0.41 per unit

Removable = $1,500 x 200 parts

146,100 units

= $2.05 per unit

Machine maintenance

Simple = $50 x 2,000 machine hours

369,991 units

= $0.27 per unit

Removable = $50 x 1,500 machine hours

146,100 units

= $0.51 per unit

Calculation of overhead allocated to each product

Simple Removable

$ $

Material receipts 0.27 1.03

Machine set-up 0.30 0.26

Assembly 0.41 2.05

Machine maintenance 0.27 0.51

Overhead allocated 1.25 3.85

Explanation:

The overhead allocation rate is calculated by dividing the overhead for each cost pool by the total cost driver for each cost pool.

The overhead allocated to each product is calculated by multiplying the cost driver rate by the cost driver for each product divided by the number of units of each product.