Question

The following is taken from Ronda Co.'s internal records of its factory with two production departments. The cost driver for indirect labor and supplies is direct labor costs, and the cost driver for the remaining overhead items is number of hours of machine use. Direct Labor Machine Use
Direct Labor Machine use hours

Department 1 $18,800 2,000
Department 2 13,200 1,200
Totals $32,000 3,200

Factory overhead costs
Rent and utilities $12,200
Indirect labor 5,400
General office expense 4,000
Depreciation—Equipment 3,000
Supplies 2,600
Total factory overhead $27,200

Compute the total amount of overhead cost allocated to Department 1 using activity-based costing.

Answer 1

Answer:

Overhead costs allocated to Department 1 is $ 16,700

Explanation:

Overhead costs allocation based on Direct Labor Cost

Indirect Labor                                                                        $ 5,400

Supplies                                                                                 $ 2,600    

Costs allocation based on direct labor costs                   $ 8,000  

Overhead costs allocation based on Machine Hours

Rent and utilities                                                                    $ 12,200

General Office expense                                                         $ 4,000

Depreciation Equipment                                                        $ 3,000

Cost allocation based on machine hours                           $ 19,200          

                                                     Direct Labor                  Machine Use Hours                

Department 1                                 $ 18,800                              2,000              

Department 2                                $ 13,200                               1,200  

Total company                               $ 32,000                             3,200

Department 1 % to total costs          

= $ 18,800/ $ 32,000 =                       58.75 %

2000 hours / 3,200 hours                                                         62.50 %

Total Overhead costs allocated to Department 1

$ 8,000 * 58.75 %                                                                  $    4,700

$ 19,200 * 62.5 %                                                                    $ 12,000

Total Overhead cost for Department 1                                  $ 16,700