Question

Fletes Corporation manufactures two products: Product O95C and Product M31N. 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 O95C and M31N.

Activity Cost Pool Activity Measure Total Cost Total Activity
Machining Machine-hours $207,000 9,000 MHs
Machine setups Number of setups $140,000 350 setups
Product design Number of products $98,000 2 products
Order size Direct labor-hours $340,000 10,000 DLHs

Activity Measure Product O95C Product M31N
Machine-hours 6,000 3,000
Number of setups 190 160
Number of products 1 1
Direct labor-hours 4,000 6,000

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product O95C?

a) $399,000 b) $392,500 c) $263,000 d) $136,000

Answer 1

Answer:

Total manufacturing overhead= $399,000

Explanation:

Giving the following information:

Machining  - Machine-hours= $207,000 9,000 MHs

Machine setups - Number of setups= $140,000 350 setups

Product design - Number of products= $98,000 2 products

Order size - Direct labor-hours= $340,000 10,000 DLHs

Activity Measure Product O95C

Machine-hours 6,000

Number of setups 190

Number of products 1

Direct labor-hours 4,000

First, we need to calculate the estimated overhead rate for each activity:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machining= 207,000/9,000= $23 per machine hour

Machine setups= 140,000/350= $400 persetup

Product design= 98,000/2= $49,000 per product

Order size= 340,000/10,000= $34 per direct labor hour

Now, we can allocate overhead to product O95C:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Machining= 23*6,000= 138,000

Machine setups= 400*190= 76,000

Product design= 49,000

Order size= 34*4,000= 136,000

Total manufacturing overhead= $399,000