Franklin Manufacturing manufactures two models of windows, bay windows and casement windows. Franklin uses an activity-based costing system. The following information about the activities used to produce the company's products has been provided.

Category Estimated Cost Cost Driver Bay Windows Casement
Unit-level $ 149,000 Labor hours 870 620
Batch-level $ 64,800 Inspections 25 15
Product-level $ 34,000 Storage Space 4,700 sq feet 3,300 sq feet
Facility-level $ 208,800 Machine hours 10,200 7,200

The amount of batch-level cost that should be allocated to the bay windows equals:

$40,500

Explanation:

Under activity-based costing method, overheads are charged to units produced using cost drivers unlike the traditional absorption costing where overhead are charged using volume-related bases only like direct labour hours.

Cost drivers are the most important factors that cause a change in the amount of overhead incurred. For example, an appropriate cost driver for batch level cost would be the number of inspections done. And this would be used to charged overhead between the bay and case windows .

Overheads Activity rate = Activity overhead / number of cost drivers

Batch level overhead activity rate = Batch level overhead / of inspection

=  $ 64,800/(25+15)  inspections

= $1620 per inspection

Batch level cost allocated to Bay

= $1620 per inspection × No of inspection for Bay

= $1620 ×  25

= $40,500

Batch level cost allocated to Bay= $40,500

level of batch cost allocated to Bay = $40,500

Explanation:

Given;

Unit-level = $ 149,000

Labor hours = 870 620

Batch-level = $ 64,800 Inspections 25 15

Product-level = $ 34,000 Storage Space 4,700 sq feet 3,300 = sq feet

Facility-level $ 208,800

Machine hours = 10,200 7,200

To calculate the overhead activity rate, we use this method

Overheads Activity rate = Activity overhead / number of cost drivers

Level of overhead activity rate = Batch level overhead / of inspection

Level of batch activity rate =  $ 64,800÷(25+15)

Level of batch activity rate = $64,800÷40

= $1620

level of batch cost allocated to Bay

level of batch cost allocated to Bay= level of batch activity rate × No of inspection for Bay

level of batch cost allocated to Bay= $1620 ×  25

level of batch cost allocated to Bay= $40,500

level of batch cost allocated to Bay= $40,500

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