Question

Donatello Co. has identified an activity cost pool to which it has allocated estimated overhead of $9,600,000. It has determined the expected use of cost drivers for that activity to be 800,000 inspections. Widgets require 200,000 inspections, Gadgets 150,000 inspections, and Targets 450,000 inspections. How much is the overhead assigned to each product? a) Widgets $2,400,000, Gadgets $1,800,000, Targets $5,400,000 b) Widgets $200,000, Gadgets $150,000, Targets $450,000 c) Widgets $3,200,000, Gadgets $3,200,000, Targets $3,200,000 d) Widgets $3,200,000, Gadgets $1,600,000, Targets $4,800,000

Answer 1

Answer:

option (a) Widgets $2,400,000, Gadgets $1,800,000, Targets $5,400,000

Step-by-step explanation:

Data provided in the question:

Allocated estimated overhead = $9,600,000

Expected use of cost drivers for the activity = 800,000 inspections.

Inspections required by Widgets = 200,000

Inspections required by Gadgets = 150,000

Inspections required by Targets = 450,000

Therefore,

Total overhead per activity = $\frac{\textup{estimated overhead}}{\textup{Total activity}}$

= $\frac{\textup{9,600,000}}{\textup{800,000 }}$

= $12 per activity

Thus,

Overhead allocated to Widgets = 200,000 × 12 = $2,400,000

Overhead allocated to Gadgets = 150,000 × 12 = $1,800,000

Overhead allocated to Target = 450,000 × 12 = $5,400,000

Hence, The correct answer is option (a)