The Mega Gonstruction Company recently switched to activay-based costing (ABCI f

Question

The Mega Gonstruction Company recently switched to activay-based costing (ABCI from the department alocation method. The department method allocoted overieed costs at a rate of S40 per machine hour. The cos SOunn for the Finishing Depertment hes gathered the following dote Drivers Tons of matenal handled Number of production runs Machine hours Amour $ 60 650 30 S 400 Mochine setups tiaies During April, Mege purchased ond used $135,000 of directi materials ot $25 per ton. There were e ght (8)praduction runs using a total ot 10,000 machine hours in Aprl The manager of O S910000 $400,000 O $868,coo

Explanation / Answer

Option B is correct, that is 400000, since overhead allocation is based on the machinery hours , hence machine hours is considered for the calculation of the overhead cost.

Allocated overhead costs per machine hour 40 Machine hours 10000 overhead cost applied to work in progress (40*10000) 400000

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