DEF produces a component, G4H125. The company has annual set up costs for 200 set ups a year of £100,000; annual materials handling costs are £75,000 with 10,000 materials handling operations taking place each year; the company deals with 4,000 orders with suppliers each year at a total cost of £80,000. Component G4H125 accounts for 80 set ups each year, 5,000 materials handling operations and 625 supplier orders. Total annual machine hours are 30,000 and component G4H125 uses 6 machine hours for each component. Total annual labour hours are 15,000 and component G4H125 uses 5 labour hours per component. 2,500 G4H125 components are produced each year. What would be the overhead to allocate to each G4H125 component using an activity-based costing approach to overhead allocation?

Question

Quizplus · Accepted Answer

Overhead allocation per G4H125 component = [(Set up costs x Set ups for G4H125) / Total set ups] + [(Materials handling costs x Materials handling operations for G4H125) / Total materials handling operations] + [(Supplier order costs x Supplier orders for G4H125) / Total supplier orders] + [(Machine hour costs x Machine hours for G4H125) / Total machine hours] + [(Labour hour costs x Labour hours for G4H125) / Total labour hours]= [(£100,000 x 80) / 200] + [(£75,000 x 5,000) / 10,000] + [(£80,000 x 625) / 4,000] + [((£100,000 x 30,000) / 30,000) x 6] + [((£100,000 x 15,000) / 15,000) x 5]= £40,000 + £37,500 + £12,500 + £20,000 + £33,333.33= £143,333.33Overhead per G4H125 component = £143,333.33 / 2,500= £57.33

DEF Produces a Component, G4H125