Question

Bippus Corporation manufactures two products:
Product X08R and Product P56L.
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 X08R and P56L.

Activity Cost Pool Activity Measure Total Cost Total Activity
Machining Machine-hours $247,000 13,000 MHs
Machine setups Number of setups $60,000 150 setups
Product design Number of products $56,000 2 products
Order size Direct labor-hours $260,000 10,000 DLHs

Activity Measure Product X08R Product P56L
Machine-hours 10,000 3,000
Number of setups 110 40
Number of products 1 1
Direct labor-hours 6,000 4,000

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L?

Answer 1

Answer:

Applied overhead to P56L $ 249,200

Explanation:

The plantwide overhead rate is determined using direct labor-hours

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

expected overhead: we add up each activity's st pool:

247,000 + 60,000 + 56,000 + 260,000 = 623,000

now wedivide over the cost driver which are the 10,000 direct labor hours:

623,000 / 10,000 = $62.3

Last we apply overhead to Product P56L:

4,000 labor hours x $62.3 overhead per hour = $ 249,200

Answer 2

The Overhead allocated to product P56L is $249,200

Predetermined overhead rate = Estimated overhead / Estimated direct labor hours

Predetermined overhead rate = (Machining + Setups + Product design + Order size) /  Estimated direct labor hours

Predetermined overhead rate = ($247,000 + $60,000 + $56,000 + $260,000) / 10,000

Predetermined overhead rate = 62.30 per DLH

Overhead allocated to product P56L = 4,000 hours * 62.30

Overhead allocated to product P56L = $249,200

Hence, the Overhead allocated to product P56L is $249,200

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