Question

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

Activity Cost Driver Amount M XY
Production setups Number of setups $72,000 12 28
Material handling Number of parts 50,000 54 36
Packaging costs Number of units 355,000 108,000 72,000
$477,000

What is the total overhead allocated to Product XY using the current system?

a. $212,400.
b. $190,800.
c. $264,600.
d. $286,200.

Answer 1

Answer:

Option (b) is correct.

Explanation:

Given that,

Total Overhead Cost = $477,000

Number of Units of Product XY = 72,000

Number of Units of Product M = 108,000

Total overhead allocated to Product XY using the current system:

= (Total Overhead Cost ÷ Number of units produced in total) × Number of Units of Product XY

= ($477,000 ÷ 180,000) × 72,000

= $2.65 × 72,000

= $190,800