Clemson Co. incurs $350,000 of overhead costs each year in its three main depart

Question

Clemson Co. incurs $350,000 of overhead costs each year in its three main departments, machining ($200,000), inspections ($100,000) and packing ($50,000). The machining department works 4,000 hours per year, there are 500 inspections per year, and the packing department packs 500 orders per year. Information about Clemson’s two products is as follows:

Product X Product Y

Machining hours 1,000 3,000

Inspections 100 500

Orders packed 350 650

Direct labor hours 1,700 1,800

Using ABC, how much overhead is assigned to Product X this year?

a. $84,167

b. $121,154

c. $170,000

d. $175,000

Explanation / Answer

Machining $200000 Inspecting $100000 order $50000 Machining hours1,000 3,000 Inspections 100 500 Orders packed 350 650 machining=200000/4000=$50 inspecting=100000/600=166.7 order=50000/1000=50 So, applied OH for Maxi A = Setting up machines for $50 x 1000 = $50000 Machining $166.7 x 100 = $16667 Inspecting $50 x 350 = 17500 Total $84,167

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