Question

Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an activity-based costing system is used, what is the total amount of overhead costs assigned to the deluxe model

Answer 1

Barnes Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled.

                                   Number of             Number of              Number of

Product                          Setups              Components     Direct Labor Hours

Standard                          22                           8                              375

Deluxe                             28                          12                              225

Overhead costs      $20,000                      $40,000

Answer:

Barnes Corporation

The total amount of overhead costs assigned to the deluxe model (using an activity-based costing system) is:

= $35,200.

Explanation:

a) Data and Calculations:

                            Overhead Costs  Standard  Deluxe Total Overhead Rate

Setups                          $20,000           22           28        50   $400 ($20,000/50)

Components                $40,000             8            12        20   $2,000 ($40,000/20)

Direct Labor Hours                             375         225      600

Total overhead costs  $60,000

Amount of overhead costs assigned to the deluxe model:

Set up costs = $11,200 (28 * $400)

Components costs = $24,000 (12 * $2,000)

Total overheads assigned = $35,200