I have no clue how to set up these problems to find the answer. I looked in my text, I used online tools, even Google, I don't know what else to do and my Prof. is not friendly. Could anybody at least point me in the correct direction?

Example:

A company manufactures two products. A and B. The overhead costs consist of setting up machines $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the products is below:

Direct Labor Hours A 15,000 B 25,000
Machine Setups A 600 B 400
Machine Hours A 24,000 B 26,000
Inspections A 800 B 700

Overhead applied to product B using traditional costing using direct labor hours is:

$xxxx?

The next question is to use ABC (activity based costing) to figure it out. I don't even know the forumlas for them, can anybody help?

Traditional method:

1. Calculate overhead rate
Total overheads/Total labor hours

2 Apply overhead rate to Product B
Labor hours for B x Overhead rate

ABC method:

Prepare a table as follows

Cost pool -- Overheads -----Total Activity ---- Overhead rate

Remember there are three activities

Now charge overhead based on activity for product B using rates calculated.