Schwynn Inc.manufactures street bicycle tires and mountain bicycle tires.To determine the amount of overhead to assign to each product line,the controller,Chu has developed the following information.
Street Mountain
Estimated tires produced 25,000 15,000
Direct labor hours per tire 2 4
Total estimated overhead costs for the two product lines are $990,000.
Required:
a.Compute the overhead cost assigned to the street tires and mountain tires,assuming that direct labor hours is used to allocate overhead costs.
b.Chu is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the mountain tire product line because of its complexity.He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

Compute the activity-based overhead rates for these three cost pools.
c.Compute the cost that is assigned to the street tires and mountain tires product lines using an activity-based costing system,given the following information.
Expected Use of Cost Drivers per Product
Street Mountain
Number of setups 150 350
Direct labor hours 25,000 15,000
Number of inspections 180 320
d.What do you believe Chu should do?

Question

Schwynn Inc.manufactures street bicycle tires and mountain bicycle tires.To determine the amount of overhead to assign to each product line,the controller,Chu has developed the following information.
Street Mountain
Estimated tires produced 25,000 15,000
Direct labor hours per tire 2 4
Total estimated overhead costs for the two product lines are $990,000.
Required:
a.Compute the overhead cost assigned to the street tires and mountain tires,assuming that direct labor hours is used to allocate overhead costs.
b.Chu is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the mountain tire product line because of its complexity.He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.
  
Compute the activity-based overhead rates for these three cost pools. 
c.Compute the cost that is assigned to the street tires and mountain tires product lines using an activity-based costing system,given the following information.
Expected Use of Cost Drivers per Product
Street Mountain
Number of setups 150 350
Direct labor hours 25,000 15,000
Number of inspections 180 320
d.What do you believe Chu should do?

Quizplus · Accepted Answer

The Answer of Schwynn Inc.manufactures street bicycle tires and mountain bicycle tires.To determine the amount of overhead to assign to each product line,the controller,Chu has developed the following information.
Street Mountain
Estimated tires produced 25,000 15,000
Direct labor hours per tire 2 4
Total estimated overhead costs for the two product lines are $990,000.
Required:
a.Compute the overhead cost assigned to the street tires and mountain tires,assuming that direct labor hours is used to allocate overhead costs.
b.Chu is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the mountain tire product line because of its complexity.He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.
  
Compute the activity-based overhead rates for these three cost pools. 
c.Compute the cost that is assigned to the street tires and mountain tires product lines using an activity-based costing system,given the following information.
Expected Use of Cost Drivers per Product
Street Mountain
Number of setups 150 350
Direct labor hours 25,000 15,000
Number of inspections 180 320
d.What do you believe Chu should do?