Question

Great Outdoors Company makes two types of camping tents. Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor. During the most recent accounting period, the company made 2,800 standard camping tents and 1,300 deluxe camping tents. Indirect manufacturing costs amounted to $484,000 and are allocated based on labor hours.
Based on this information:

A) $4 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
B) $20.80 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
C) $16 of overhead cost should be assigned to each standard camping tent and $40 of overhead cost should be assigned to each deluxe tent.
D) None of these answers is correct.

Answer 1

Answer:

The correct answer is option (d).

Explanation:

According to the scenario, the computation for the given data are as follows:

Total labor hour for standard tents = 2,800 × 4 = 11,200 Labor per hour

Total labor hour for deluxe tents = 1,300 × 10 = 13,000 Labor per hour

Total labor hour = 11,200 + 13,000 = 24,200

Allocation rate for indirect manufacturing costs = Total costs / Total labor hours = $484,000 /24,200 = $20

So, Per unit overhead for standard tents = Labor hours per unit × Allocation rate

= 4 × $20 = $80

Per unit overhead for deluxe tents = Labor hours per unit × Allocation rate

= 10 × $20 = $200

So, $80 of overhead cost should be assigned to each standard camping tent and $200 of overhead cost should be assigned to each deluxe tent.