Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2,200 units, while 1,500 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $149,115. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: The cost pool activity rate for Engineering Costs would be closest to
A)$13.00 per engineering hour.
B)$42.00 per engineering hour.
C)$18.00 per engineering hour.
D)$63.09 per engineering hour.

Question

Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2,200 units, while 1,500 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $149,115. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:  The cost pool activity rate for Engineering Costs would be closest to
A)$13.00 per engineering hour. 
B)$42.00 per engineering hour. 
C)$18.00 per engineering hour. 
D)$63.09 per engineering hour.

Quizplus · Accepted Answer

In activity-based costing, overhead costs are allocated based on the activities that drive those costs. The question provides three activity cost pools: engineering costs, machine-related costs, and other costs.

To calculate the activity cost rate for engineering costs, we divide the total estimated overhead for engineering costs ($64,200) by the total number of engineering hours (4,050):

$64,200 / 4,050 = $15.86 per engineering hour

Therefore, the closest choice to the activity cost rate for engineering costs would be option B) $42.00 per engineering hour.

Vandalay Industries Manufactures Two Products: Toasters and Blenders