Question

Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 0.5 pound cans. The company identified the following partial list of activities, costs, and activity drivers expected for the next year: ActivityExpected CostsCost Driver Material handling$105,000 Number of batches made Storage costs$820,000 Weight of finished product Dog FoodCat Food Production volume 100,000units 200,000units Batches made 200batches 150batches What are the overhead rates used to apply material handling (MH) and storage costs (SC) using activity-based costing

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Estimated weight:

dog food= 40-pound bags

cat food= 0.5 pound cans.

Activity: Expected Costs - Cost Driver

Material handling: $105,000 - Number of batches made

Storage costs: $820,000 - Weight of the finished product

Production:

Dog food= 100,000units - 200 batches

Cat food= 200,000 units - 150 batches

To calculate the estimated manufacturing overhead rates based on each activity, we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Material handling:

Estimated manufacturing overhead rate= 105,000/ (200 + 150)

Estimated manufacturing overhead rate= $300 per batch

Storage costs:

Estimated manufacturing overhead rate= 200,000 / (100,000*40 + 200,000*0.5)

Estimated manufacturing overhead rate= 200,000/ 4,100,000

Estimated manufacturing overhead rate= $0.05 per pound