Plant wide overhead cost allocation based on various activities

Expense Category Expense Cost Driver Total Cost driver

Indirect labour - scheduling runs 10000 No. of runs 150
Indirect labour - changeover 8000 Setup time 526
Indirect labour - records 2000 No. of products 4
Fringe benefits 16000 Total labour hours Add 40% on LH
computer systems/run 8000 No. of runs 150
computer systems - records 2000 No. of products 4
machinery 8000 Machine hours 10000
maintenance 4000 Machine hours 10000
energy 2000 Machine hours 10000
TOTAL 60000
$/unit driver
66.666666667
15.209125475
500

53.333333333
500
0.8
0.4
0.2
Total overhead cost per cost driver

No. of runs

Indirect labour - scheduling runs 66.66667

40% Frings on indirect labour 26.66667
Computer systems / runs 53.33333
Total OH cost / #Runs 146.6667

Setup time

Indirect labour - changeover 15.20913

40% Frings on indirect labour 6.08365
Total OH cost / Setup hours 21.29278

Machine hours

Machinery 0.8
Maintenance 0.4
Energy 0.2
Total OH cost / Machine hours 1.4

Products

Indirect labour - records 500

40% Frings on indirect labour 200
Computer systems - records 500
Total OH cost / product 1200
Overhead cost allocation based on resource utilization

blue black red purple Total OH

runs 50 50 38 12
cost/run 146.6667 146.6667 146.6667 146.6667
total run OH 7333.333 7333.333 5573.333 1760 22000

setup hrs 200 50 228 48

cost / H 21.29278 21.29278 21.29278 21.29278
Total setup OH 4258.555 1064.639 4854.753 1022.053 11200

Machine hours 5000 4000 900 100

cost / Machine Hour 1.4 1.4 1.4 1.4
Total Machine hr OH 7000 5600 1260 140 14000

product 1 1 1 1
cost / product 1200 1200 1200 1200
Total product OH 1200 1200 1200 1200 4800

DL 10000 8000 1800 200

Fringe on DL 4000 3200 720 80 8000

Total OH 23791.89 18397.97 13608.09 4202.053 60000

Revised income statement

blue black red purple Total

Sales 75000 60000 13950 1650 150600

Material cost 25000 20000 4680 550 50230

DL cost 10000 8000 1800 200 20000
Total direct COGS 35000 28000 6480 750 70230

Indirect OH costs 23791.8885 18397.9721 13608.086 4202.0532 60000

Ttoal costs 58791.8885 46397.9721 20088.086 4952.0532 130230

Operating income 16208.1115 13602.0279 -6138.086 -3302.053 20370

Percentage of total sales 50 40 9 1 100

Recommendations
Red and Purple pens should be discontinued
Make production runs of blue and black color longer to minimize physical changeovers and thereby reduce associated overhea
y reduce associated overheads