Question

Assume that total costs assigned to the setup activity cost pool in March are $120,000 and 100 setups were completed in March. Further, assume that during March machines were setup 20 times to make product X5. The total setup cost that would be assigned to product X5 would be: Select one: A. $ 1,600 B. $16,000 C. $24,000 D. Cannot be determined

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

Assume that the total costs assigned to the setup activity cost pool in March are $120,000 and 100 setups were completed in March.

Further, assume that during March machines were setup 20 times to make product X5.

First, we need to calculate the activity rate for setups.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 120,000/100= $1,200 per setup

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 1,200*20= $24,000