Elfie Enterprises uses three cost pools to allocate manufacturing overhead costs. The following estimates were provided for the coming year

Manufacturing
Cost Pool Overhead Costs Cost driver Activity level
Supervision of direct labor $320,000 Direct labor hours 800,000
Machine maintenance $120,000 Machine hours 960,000
Facility rent $200,000 Square feet of area 100,000
Total overhead costs $640,000

The accounting records show the Lacio Job consumed the following resources.

Cost driver Actual level
Direct labor hours 200
Machine hours 1,600
Square feet of area 50

Required:
a. If direct labor hours are considered the only manufacturing overhead cost driver, compute:
1. the single cost driver rate for Elfie Enterprises; and
2. the amount of manufacturing overhead costs allocated to the Lacio job.

b. If Elfie Enterprises uses the three cost pools to allocate manufacturing overhead costs, compute:
1. the cost driver rate for each of the three overhead activities above; and
2. the amount of manufacturing overhead costs allocated to the Lacio job.

c. Review the amount of manufacturing overhead costs allocated in (a2 ) and (b2 ). Why do the two estimates differ? Which method of allocation probably best estimates the actual manufacturing overhead costs used? Why?.

a. 1. Single cost driver rate is $0.80 per dlh = $640,000 / 800,000 dlh
2. $160 = 200 dlh × $0.80 per dlh
b. 1. Supervision cost driver rate is $0.40 per dlh = $320,000 / 800,000 dlh
Machine maintenance cost driver rate is $0.125 per mh = $120,000 / 960,000 mh
Facility rent cost driver rate is $2 per sq ft = $200,000 / 100,000 sq ft
2. $380 = (200 × $0.40 per dlh) + (1,600 × $0.125 per mh) + (50 × $2 per sq ft)
c. The two estimates calculated for overhead costs differ because the $160 was calculated using a single cost driver rate and the $380 was calculated using multiple cost driver rates. The best estimate of actual overhead costs used is probably the $380 since total overhead costs are affected by each of the three cost drivers.