Question

Tioga Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.

	Lenses		Mirrors
Units produced	24		24
Material moves per product line	22		12
Direct-labor hours per unit	240		240

The total budgeted material-handling cost is $61,440.  

Required:

1. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?
2. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one mirror would be what amount?
3. Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.
4. Under activity-based costing (ABC), the material-handling costs allocated to one mirror would be what amount? The cost driver for the material-handling activity is the number of material moves.

(For all requirements, Do not round your intermediate calculations.)

Answer 1

Plantwide overhead rate = Total Budgeted material handling cost / Direct labor hours

Total Budgeted material handling cost = $61,440

Direct labor hours = (240 hours * 24 units) + (240 hours * 24 units) = 11,520

Planwide overhead rate = $61,440 / 11,520 direct labor hours = $5.3333 per direct labor hour

Requirement 1:

Material-handling costs allocated to one lens

Material-handling cost allocated to lens = 24 lens * 240 direct labor hours * $5.3333 per direct labor hours = $30,720

Material-handling costs allocated to one lens = $30,720 / 24 units = $1,280 per lens

Requirement 2:

Material-handling costs allocated to one mirror

Material-handling cost allocated to mirrors = 24 mirrors * 240 direct labor hours * $5.3333 per direct labor hours = $30,720

Material-handling costs allocated to one mirror = $30,720 / 24 units = $1,280 per mirror

Activity rate = Total Material handling costs / Total number of material moves

Total Material handling costs = $61,440

Total number of material moves = 22 + 12 = 34

Activity rate = $61,440 / 34 moves = $1,807.0588

Requirement 3:

Material-handling costs allocated to one lens under Activity based costing

Material-handling cost allocated to lens = 22 material moves * $1,807.0588 per material move = $39,755

Material-handling costs allocated to one lens = $39,755 / 24 units = $1,656 per lens

Requirement 4:

Material-handling cost allocated to mirrors = 12 material moves * $1,807.0588 per material move = $21,685

Material-handling costs allocated to one mirror = $21,685 / 24 units = $904 per mirror

All the best...