iPad 12:11 PM 76%- Chapter Six Quiz Question 9 (of 10) Save & ExitSubmit 9 Potth
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Question
iPad 12:11 PM 76%- Chapter Six Quiz Question 9 (of 10) Save & ExitSubmit 9 Potthast Company uses a two-stage system to allocate its overhead to products. The company uses machine hours in the fabrication department and direct labor hours in the assembly department to allocate overhead costs to Work-in-Process. During the current year, the company incurred $50,000 of overhead costs in the fabrication department and $75,000 of overhead costs in the assembly department. The company also reported the following results in the production of its standard and deluxe bicycles. Standard 1000 4,000 Deluxe 4,000 6,000 Using a two-stage cost allocation, how much overhead should be allocated to the production of deluxe bicycles in the current year? O $40,000 O $50,000 $75,000 O $85,000 O None of these.Explanation / Answer
D. $85,000.
For each department, the predetermined overhead rate = Estimated overhead ÷ Estimated allocation base.
The predetermined overhead rate for the fabrication department = Estimated overhead costs ÷ Estimated machine hours = $50,000 ÷ 5,000 = $10 per machine hour.
The predetermined overhead rate for the assembly department = Estimated overhead costs ÷ Estimated direct labor hours = $7,500 / 10,000 = $7.50 per direct labor hour.
The overhead allocated to the production of deluxe bicycles = Fabrication overhead of $40,000 (or 4,000 machine hours x $10 per machine hour) + Assembly overhead of $45,000 (or 6,000 direct labor hours x $7.50 per direct labor hour) = $85,000.
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