Windsor Co. incurs $1050000 of overhead costs each year in its three main depart

Question

Windsor Co. incurs $1050000 of overhead costs each year in its three main departments machining ($600000), inspections ($300,000) and packing ($150,000). The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year. Information about Windsor's two products is as follows Product X Product Y Machining Hours Inspections Orders Packed Direct Labor Hours 1,000 100 350 1,700 3,000 500 650 1,800 Using the ABC, how much overhead is assigned to Product X this year? a. $252,500 b. $363,462 c. $510,000 d. $525,000

Explanation / Answer

Answer:-Activity rate for each department:-

Machining:-Overhead costs/No. of machining hours

=$600000/4000 machine hours =$150 per machine hour

Inspections:- Overhead costs/No. of inspections

=$300000/600 inspections=$500 per inspection

Packing= Overhead costs/No. of orders packed

=$150000/1000 orders =$150 per order

Total overhead cost assigned to product X this year using ABC method:-

={(1000 machining hours *$150 per machine hour)+(100 inspections*$500 per inspection)+(350 orders packed*$150 per order)

={$150000+$50000+$52500}

=$252500

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