Altex inc. manufactures two products: car wheels and truck wheels. to

Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information.

Car Truck

Estimated wheels produced 43,330 15,000

Direct labor hours per wheel 1 3

Total estimated overhead costs for the two product lines are $758,190.

Overhead rate $ 8.58 per direct labor hour

 

 

The overhead cost assigned to the car wheels and truck wheels, assuming that direct labor hours is used to allocate overhead costs.

Car wheels $ 371,771.40

Truck wheels $ 386,100

 

 

Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheel product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.

Activity Cost Pools Expected Use of  Cost Drivers

Estimated Overhead

Costs

Setting up machines 1,000 setups $222,000

Assembling 88,330 labor hours 264,990

Inspection 1,200 inspections 271,200

 

Compute the activity-based overhead rates for these three cost pools.

Overhead Rates

Setting up machines $

Assembling $

Inspection $

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