Question :
The Chinese Teapot Company manufactures ceramic and plastic teapots. The company's western plant has changed from a labor-intensive operation to a robotics environment. As a result, management is supposing changing from a direct-labor based overhead rate to an activity-based cost technique. The controller has chosen the subsequent activity cost pools and cost drivers for the factory overhead:

Expected

Overhead

Cost      

Cost Driver         

Annual

Cost Driver

Purchase orders  $300,000              Number of orders          15,000 orders

Set-up costs       $200,000              Number of set-ups        5,000 set-ups

Testing costs      $320,000              Number of tests              8,000 tests

Machine maintenance   $500,000              Machine hours 25,000 hours

REQUIRED:

a. Evaluate the overhead rate for each cost driver.

b. An order for 50 ceramic teapots had the subsequent needs:

Number of purchase orders 3

Number of set-ups 20

Number of product tests 7

Machine hours  150

How much overhead could be assigned to this order?