Assume Heartwood Cabinets uses ABC costing to apply overhead to its products. The cost accountants have identified two different cost pools. The first includes all the costs associated with manufactur

Question

Assume Heartwood Cabinets uses ABC costing to apply overhead to its products. The cost accountants have identified two different cost pools. The first includes all the costs associated with manufacturing cabinets. The second includes all the costs associated with machine setup, as follows: Heartwood Manufacturing Overhead
(
based on prior year data
)
Manufacturing Operations Overhead CostsUnits to be produced 
(
from Production budget
)
 
1
0
5
,
0
0
0
 
Labor hours required for planned production
 
1
4
5
,
5
0
0
 
Variable Overhead

Indirect materials and supplies$ 
3
.
0
0
4
3
6
,
5
0
0
 
Materials handling$ 
1
.
0
0
1
4
5
,
5
0
0
 
Indirect labor$ 
1
.
2
5
1
8
1
,
8
7
5

$ 
7
6
3
,
8
7
5
.
0
0
Fixed manufacturing overhead

Factory rent
 
$ 
2
4
,
0
0
0
.
0
0
 
Machine depreciation
 
$ 
1
3
,
0
0
0
.
0
0
 
Supervisor labor
 
$ 
3
0
,
0
0
0
.
0
0
 
Utilities
 
$ 
1
9
,
9
7
6
.
0
0
 
Maintenance and repairs
 
$ 
9
,
9
9
9
.
0
0
 
Property taxes
 
$ 
1
2
,
1
5
0
.
0
0

$ 
1
0
9
,
1
2
5
.
0
0

$ 
8
7
3
,
0
0
0
.
0
0
 ﻿Machine Setup Overhead CostsLabor hours required for machine setup
 
1
5
,
0
0
0
 
Variable Overhead

Supplies$ 
1
0
.
0
0
$ 
1
5
0
,

VIPSolutions · Accepted Answer

# Step-by-Step Allocation of Overhead Costs for Heartwood Cabinets

## 1. Data Summary

| Cost Pools                        | Total Cost ($) | Units to be produced | Labor hours for production | Labor hours for setup |
|----------------------------------|----------------|----------------------|----------------------------|-----------------------|
| Manufacturing Overhead         | 1,683,000      | 105,000 units       | 145,550 hours             | N/A                   |
| Machine Setup Overhead         | 810,000        | 15,000 setup hours  | N/A                        | 15,000 hours        |

---

## 2. Calculate Predetermined Overhead Rates

### a) Manufacturing Operations Overhead Rate

$$
\text{Rate} = \frac{\text{Total Manufacturing Overhead}}{\text{Total Labor Hours for Production}}
$$

$$
= \frac{1,683,000}{145,550} \approx \$11.56 \text{ per labor hour}
$$

### b) Machine Setup Overhead Rate

$$
\text{Rate} = \frac{\text{Total Setup Overhead}}{\text{Setup Labor Hours}}
$$

$$
= \frac{810,000}{15,000} = \$54.00 \text{ per setup labor hour}
$$

---

## 3. Data for Each Cabinet Type

| Cabinet Type | Units to be produced | Labor hours per unit | Setup hours per unit |
|--------------|----------------------|---------------------|---------------------|
| Pine-Arch    | 4,500                | 1                   | .014               |
| Pine-Cathedral | 5,000              | 1                   | .014               |
| Pine-Shaker  | 20,000               | 1.5                 | .014               |
| Pine-Slab    | 25,000               | 1                   | .014               |
| Pine-Beadboard | 30,500             | 2                   | .014               |

---

## 4. Calculate Overhead Allocation per Unit

### a) Manufacturing Overhead per unit

$$
\text{Overhead per unit} = \text{Labor hours per unit} \times \text{Manufacturing OH rate}
$$

### b) Machine Setup Overhead per unit

$$
\text{Setup hours per unit} \times \text{Setup OH rate}
$$

---

## 5. Calculations for Each Cabinet Type

### Pine-Arch

- **Manufacturing Overhead**:

$$
1 \times \$11.56 = \$11.56
$$

- **Setup Overhead**: