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Problem 6 - Traditional vs. ABC -11 total points

The following cost information is available for David, Ltd.:

Activity	Allocation Base	Volume of Activity	Overhead Cost
Purchasing	Purchase orders	25,000	$200,000
Receiving	Shipments received	20,000	100,000
Machine setups	Setups	5,000	275,000
Quality control	Inspections	30,000	210,000

Direct materials are $15 per unit for luxury handbags and $10 per unit for deluxe handbags. There were 12,000 direct labor hours. Each of which was charged to inventory at $18 per hour.

Required: 1. Calculate the overhead rate using activity-based costing.

The overhead rate for each activity is as follows:

Purchasing:
Receiving:
Machine setups:
Quality control:

Data for requirement 2:
One particular batch of 40 luxury handbags had the following specifications:
Direct labor hours	18
Purchase orders	7
Shipments received	4
Setups	3
Inspections	10

2. Using the data in requirement 2 and overhead rates computed in requirement 1, calculate the overhead to be allocated to the bags under the activity-based costing method.

Purchasing:
Receiving:
Machine setups:
Quality control:
Total

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