X Company uses an activity-based costing overhead allocation system. It has iden
ID: 2507927 • Letter: X
Question
X Company uses an activity-based costing overhead allocation system. It has identified three activities - Setup, Product Testing, Machine Maintenance - and their respective cost drivers - setup hours, tests, machine hours. Budgeted activity costs are as follows:
The following cost driver information is available for its products:
How much overhead was allocated to Product A (round overhead rates to the nearest cent)?
Activity Budgeted Cost Setup $109,000 Product Testing 56,000 Machine Maintenance 56,000Explanation / Answer
Hi,
Please find the answer as follows:
Setup Cost Allocated to Product A = Total Budgeted Cost*Proportion of Set Up Hours for Product A/Total Hours = 109000*27000/806500 = 3649.10
+
Product Testing Cost Allocated to Product A = Total Budgeted Cost*Proportion of Tests for Product A/Tests for All Products = 56000*48400/917000 = 2955.73
+
Machine Maintenance Cost Allocated to Product A = Total Budgeted Cost*Proportion of Machine Hours for Product A/Machine Hours for All Products = 56000*75700/889200 = 4767.43
Overhead Cost Allocated to Product A = 3649.10 + 2955.73 + 4767.43 = 11372.26 or 11372
Answer is 11372.26 or 11372.
Thanks.
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