Question

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:
Activity Cost Driver Amount M XY
Production setups Number of setups $ 72,000 12 28
Material handling Number of parts 50,000 54 36
Packaging costs Number of units 355,000 108,000 72,000
$ 477,000
What is the total overhead allocated to Product XY using the current system?

A)$212,400.

B)$190,800.

C)$264,600.

D)$286,200.

Answer 1

Answer:

Option (B) is correct.

Explanation:

Number of units produced in total  = M + XY

                                                         = 108,000 + 72,000

                                                         = 180,000

Total Overhead Cost = $72,000 + $50,000 + $355,000

                                   = $477,000

The total overhead allocated to Product XY using the current system:

= (Total Overhead Cost ÷ number of units produced in total) × Number of Units of Product XY

= ($477,000 ÷ 180,000) × 72,000

= $190,800