Question

Use the following information for the next four questions.St. James, Inc. currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and thecreation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the costs pools and respective driver volumes follow: Pool No. 1 Pool No. 2 Pool No. 3Product (Driver: DLH) (Driver: SU) (Driver: PC)Beta 1,200 45 2,250Zeta 2,800 55 750 4,000 DLHs 100 SUs 3,000 PCs Pool Cost $160,000 $280,000 $360,000 1. The overhead cost allocated to Beta by using traditional costing procedures would be: a. $240,000 b. $356,000 c. $444,000 d. $560,000

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Estimated overhead= $800,000

Total estimated direct labor hours= 4,000

Direct labor hours Beta= 1,200

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= 800,000/4,000= $200 per hour

Now, we can allocate overhead to Beta:

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

Allocated MOH= 200*1,200= $240,000