activity based costing 460451

Total production overhead $5,017,500

Envelopes Cups

Direct costs $8,250,000 $8,750,000

Units produced 1,500,000 350,000

Machine hours 200,000 50,000

Direct labor hours 34,500 153,625

Number of quality inspections 1,000 6,500

Revenue generated by the two products $15,000,000 $16,800,000

You have determined, using ABC, that overhead can be assigned to separate cost pools specifically:

Pool 1 = $1,260,000 using machine hours as the cost driver

Pool 2 = $2,257,500 using direct labor hours as the cost driver

Pool 3 = $1,500,000 using the number of quality inspections as the cost

driver

4. Using the new cost pools and cost drivers calculate gross profit and the rate of return of the two products.