EXERCISE 8-21 (CONTINUED)

2. a. Overhead rates by activity center:

(a)

Estimated

(b)

(a) ÷ (b)

Predetermined

Overhead

Expected

Activity

Costs

Activity Center

Overhead Rate

Purchasing ... $560,000 2,000 orders $280 per order

Material handling .. $193,000 1,000 setups $193 per setup

Quality control... $90,000 500 batches $180 per batch

Roasting ... $1,045,000 95,000 roasting

hours $11 per roast-

ing hour

Blending... $192,000 32,000 blending

hours $6 per blend-

Packaging ... $120,000 24,000 packaging

hours $5 per pack-

aging hour

Case 8-31 (continued)

Before we can determine the amount of overhead cost to assign to

the products we must first determine the activity for each of the

products in the six activity centers. The necessary computations fol-

low:

Number of purchase orders:

Kenya Dark: 80,000 pounds ÷ 20,000 pounds per order = 4 orders

Viet Select: 4,000 pounds ÷ 500 pounds per order = 8 orders

Number of batches:

Kenya Dark: 80,000 pounds ÷ 5,000 pounds per batch = 16 batches

Viet Select: 4,000 pounds ÷ 500 pounds per batch = 8 batches

Number of setups:

Kenya Dark: 16 batches × 2 setups per batch = 32 setups

Viet Select: 8 batches × 2 setups per batch = 16 setups

Roasting hours:

Kenya Dark: 80,000 pounds × 1.5 roasting hours per 100 pounds =