Question

performance bicycle company makes steel and titanium handlebars for bicycles. it requires approximately one hour of labor to make one handlebar of either type. during the most recent accounting period, barr company made 7,100 steel bars and 2,900 titanium bars. set up costs amounted to $41,000. one batch of each type of bar was run each month. if a single company wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be:

Answer 1

The setup cost that comes from the overhead cost to the steel bars will be $29,110.

What is overhead cost?

In business, overhead or overhead cost expense refers to an ongoing expense of operating a business. Overheads are the expenditure which cannot be conveniently traced to or identified with any particular revenue unit, unlike operating expenses such as raw material and labor.

How to calculate based on the information from the question?

Particulars                 Steel bars               Titanium bars

Units per batch            7,100                         2,900

Hours per unit              1                                1

Total hours                   7,100                         2,900

Predetermined overhead rate on the basis of direct labor =

Total overhead / Total labor hours

= 41,000/((7100+2900)*1hour)

= 41,000 / 10,000

= 4.1

Overhead cost allocated to steel bars = 4.1 * 7,100 = $29,110

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