Eric’s Engines Ltd (EEL) manufactures a variety of small engine parts for The company’s manufacturing overhead cost budget for the current year is as follows:
These budgeted overhead costs total $1 536 000, and the budgeted amount of direct labour for the year is 40 000 hours.
1. Calculate the predetermined overhead rate based on direct labour hours.
2 Management has decided to implement an activity-based costing system. The following cost drivers are under consideration:
• Production (in units)
• Raw material cost.
• Factory space
• Machine hours.
• Number of production runs.
• Number of shipments of finished goods.
• Number of shipments of raw materials.
• Number of different raw materials and parts used in a product.
• Engineering specifications and change orders.
Divide EEL’s manufacturing overhead costs into separate cost pools, and identify a cost driver for each cost pool
3. Which of the overhead costs are candidates for elimination as non-value-added costs?
4. Suppose that inspection of raw materials and receiving were combined to form an activity cost pool, with the number of shipments of raw materials identified as the cost driver. Calculate a rate for this cost pool, assuming that 400 shipments are anticipated.