Question

Zimmerman Company manufactures two products, Board 12 and Case 165. Zimmerman’s overhead costs consist of setting up machines, $2,400,000; machining, $5,400,000; and inspecting, $1,800,000. Information on the two products is:Board 12 - Case 165Direct labor hours - 15,000 - 25,000Machine setups - 600 - 400Machine hours - 24,000 - 26,000Inspections - 800 - 700Overhead applied to Case 165 using activity-based costing is?a. $3,840,000b. $4,608,000c. $4,992,000d. $6,000,000

Answer 1

Answer:

Option (b) is correct.

Explanation:

Setting up machine cost applied to product case 165:

= (Total setting up machine cost ÷ Total machine setups) × Number of machine setups of case 165

= [$2,400,000 ÷ (600 + 400)] × 400

= $2,400 × 400

= $960,000

Machining cost applied to product case 165:

= (Total machining cost ÷ Total machine hours) × Number of machine hours of case 165

= [$5,400,000 ÷ (24,000 + 26,000)] × 26,000

= $108 per machine hour × 26,000

= $2,808,000

Inspecting cost applied to product case 165:

= (Total Inspecting cost ÷ Total Inspections) × Number of Inspections of case 165

= [$1,800,000 ÷ (800 + 700)] × 700

= $1,200 per inspection × 700

= $840,000

Therefore,

Overhead applied to Case 165:

= Setting up machine cost + Machining cost + Inspecting cost

= $960,000 + $2,808,000 + $840,000

= $4,608,000