Question -
The expected production and sales are 1000 premium shoes and 20 000 budget shoes. Company management is concerned at the traditional overhead cost allocation system being used to cost overhead into the shoes and accumulated the following data from last year in order to conduct an activity-based costing overhead allocation:
Activity Allocation base Overhead cost
Purchasing Number of purchase orders $200 000
Stitching Metres stitched $100 000
Sales Number of sales orders $200 000
The numbers of activities for budget shoes and premium shoes are as follows:
Budget
Purchase orders 7000
Centimetres stitched 8000
Sales orders 8000
Premium
Purchase orders 3000
Centimetres stitched 2000
Sales orders 2000
Required -
a. Calculate the overhead rates for the following activities: purchasing, stitching and sales orders.
b. Calculate the dollar amount of overhead that should be assigned to a budget shoe and a premium shoe, under the ABC system.