# Overhead Costs and Cost Drivers

Question

Lotus Ltd has identified the following overhead costs and cost

drivers for next year

Overhead Items E ( cost) \$

Power 15000

Maintenance cost 7800

Ordering cost 6150

Set ups cost 4500

Cost Driver E( activity)

Number of setups 400

Number of orders 4,000

Machine Hours 5,000

Kilowatt hours 52000

The following is one of the jobs completed during the year

Product A Product B

Direct materials \$1200 \$1300

Hourly rate 25 30

Units completed 125 150

DLH 140 70

Number of setups 4 6

Number of orders 20 9

Machine hours 250 100

Kilowatt hours 75 48

The company’s practical activity is 9800 machine hours

REQUIRED

Part 1

Calculate the predetermined rate for the plant using FBC based on machine hours for each job
Calculate total product cost using FBC based on Machine hours for each job
Calculate the unit cost for each Product
Is the overhead over-applied or under-applied?
Part 2

Calculate the predetermined rate for the plant using ABC based on machine hours for each job
Calculate product cost under ABC.
Calculate the unit cost for each Product [ABC]
Is the overhead over-applied or under-applied under ABC?
Compare the result of FBC and ABC.

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