E4-4 Altex Inc. manufactures two products: car wheels and truck wheels. To determine the amount of overhead to assign to each product line, the controller, Robert Hermann, has developed the following information.
Estimated wheels produced
Direct labor hours per wheel
Total estimated overhead costs for the two product lines are
b Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheel product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs.
(c) Compute the cost that is assigned to the car wheels and truck product lines using an activity-based costing system, given the following information.
d What do you believe Hermann should do? (Enter your text answer in the block below.)
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