Question

Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.
Activity Cost Pool Activity Measure Total Cost Total Activity
Machining Machine-hours $ 330,000 15,000 MHs
Machine setups Number of setups $ 300,000 500 setups
Product design Number of products $ 46,000 2 products
Order size Direct labor-hours $ 330,000 10,000 DLHs
Activity Measure Product B82O Product P99Y
Machine-hours 7,000 8,000
Number of setups 200 300
Number of products 1 1
Direct labor-hour 3,000 7,000
Required:
1. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P99Y?

Answer 1

Answer:

Allocated overhead = $704,200

Explanation:

Allocated overhead = overhead absorpton rate × labour hours

Overhead absorption rate = estimated overhead /estimated labour hours

= $( 330,000 + 300,000 + 46,000 + 330,000)/(3000+7000) labour hours

=$100.6  per hour

Overhead to be allocated to Product P99Y= $100.6 × 7000

= $704,200

Allocated overhead = $704,200