Question

A company uses an activity-based costing system composed of three processes: tooling, processing, and resources. The company has the following firm-wide totals from its costing system: Tooling Processing Resources Driver quantity 25 setups 20,000 direct labor hours 40,000 sq. ft. Costs per pool $500,000 $2,000,000 $800,000 Product D uses 3 setups, 3,000 direct labor hours, and 8,000 square feet. What is the total overhead cost that should be assigned to Product D?
a. $160,000
b. $300,000
c. $360,000
d. $520,000

Answer 1

Answer:

d. $520,000

Explanation:

Provided information,

Activities                         Cost                  Cost drivers

Tooling                      $500,000                  25 setups

Processing               $2,000,000                20,000 direct labors

Resources                  $800,000                 40,000 square feet

Rate per activity

Tooling = $\frac{500,000}{25} = 20,000 per setup$

Processing = $\frac{2,000,000}{20,000} = 100 per labor hour$

Resources = $\frac{800,000}{40,000} = 20 per feet.$

Information for Product D

3 setups = 3 $\times$ $20,000 = $60,000

3,000 direct labor hours = 3,000 $\times$ $100 = $300,000

8,000 square feet = 8,000 $\times$ $20 = $160,000

Total overhead cost assigned = $60,000 + $300,000 + $160,000 = $520,000