Rossi Company produces a variety of garden tools in a highly automated manufactu
ID: 2528536 • Letter: R
Question
Rossi Company produces a variety of garden tools in a highly automated manufacturing facility. The costs and cost drivers associated with four activity cost pools are given below: ACTIVITIES: Total Cost Total Cost Driver Volume UNIT LEVEL $30,000 BATCH PRODUCT FACILITY LEVEL $6,000 LEVEL $12,000 LEVEL $36,000 % of use 5,000 labor hrs $6 per labor hr 240 set ups $50 per set up 36,000 units $1 per unit Allocation rate Production of 10,000 units of a hand-held tiller required 500 labor hours, 25 setups, and consumed 40% of the product sustaining activities. Assuming the company decided to change to labor hours as a companywide allocation base, how much total overhead will be allocated to this tool? $10,000 $16,650 $14,250 $8,400Explanation / Answer
When a single basis is used for allocation of overhead, overhead allocation rate is calculated as follows
Overhead allocation rate
= Total budgeted overhead / Budgeted allocation rate
= Total overhead / Budgeted labor hours
= ($30,000 + $12,000 + $6,000 + $36,000) / 5,000
= $16.80 per labor hour
So, overhead allocated to tool
= Overhead absorption rate x Number of labor hours consumed by the tool
= $16.80 x 500
= $8,400
So, as per above calculations, option D is the correct option
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