Question

Arrojo Corporation manufactures two products: Product X71B and Product C91I. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X71B and C91I.
Activity Cost Pool Activity Measure Total Cost Total Activity
Machining Machine-hours $275,000 11,000 MHs
Machine setups Number of setups $210,000 350 setups
Product design Number of products $48,000 2 products
General factory Direct labor-hours $300,000 $10,000 DLHs
Activity Measure Product X71B Product C911
Machine-hours 5,000 6,000
Number of setups 220 130
Number of products 1 1
Direct labor-hours 6,000 4,000
Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?
A) $416,500.
B) $499,800.
C) S333,200.
D) $372,000.

Answer 1

Answer:

Allocated MOH= $499,800

Explanation:

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

total estimated overhead costs for the period= 275,000 + 210,000 + 48,000 + 300,000= $833,000

Direct labor hours= 10,000

Predetermined manufacturing overhead rate= 833,000 / 10,000

Predetermined manufacturing overhead rate= $83.3 per direct labor hour

Now, we can allocate overhead to product X71B:

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

Allocated MOH=  83.3*6,000

Allocated MOH= $499,800