Zeta Company is preparing its annual profit plan. As part of its analysis of the
ID: 2591944 • Letter: Z
Question
Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given below:
Wall Mirrors Specialty Windows
Units produced 25 25
Material moves per product line 5 15
Direct labor hours per unit 200 200
Budgeted materials handling costs $50,000
A) Under a costing system that allocates overhead on the basis of direct labor hours, Zeta Company’s materials handling costs allocated to one unit of wall mirrors would be:
B) Under activity-based costing (ABC), Zeta’s materials handling costs allocated to one unit of wall mirrors would be:
Explanation / Answer
A)
Budgeted materials handling costs = 50000
Total direct labor hours = (25+25)*200 = 10000
Overhead Cost per direct labor hour = 50000/10000 = 5
Overhead Cost per unit of Wall Mirrors = 5*200 = 1000
B)
Budgeted materials handling costs = 50000
Total material moves per product line = 5 + 15 = 20
Material handling cost allocated to Wall Mirrors = (50000/20) *5 = 12500
Units produced of Wall Mirrors = 25
Materials handling cost per unit = 12500/25 = 500
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