Question

Dartmouth 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                                         15                                          9                                           300

Deluxe                                             31                                        20                                           235

Overhead costs                  $78,200                            $89,900

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 standard model?

A) $87,500

B) $114,700

C) $80,600

D) $84,050

Answer 1

For Calculating total amount of overhead costs we first need to calculate set up rate and component rate:

Setting up rate= Total Setting Up Costs/Total no of set ups

Therefore, Setting up rate = $78,200/(15+31 set ups) = $1,700 per Setup

Total Setting up allocated to standard model = No of set ups used by standard model * Setting up rate

Therefore, Total Setting up allocated to standard model = 15*$1,700 = $25,500

Component rate = Total Components Costs / Total No of Components used

Therefore, Component rate = $89,900/(9+20 set ups) = $3,100 per component

Total Components cost allocated to standard model = No of components used by standard model * Component rate

Therefore, Total compnent costs allocated to standard model = 9*$3,100 = $27,900

Total Costs allocated to Standard Model = Total Setting up allocated to standard model + Total component costs allocated to standard model

Hence, Total Costs allocated to Standard Model = $25,500 + $27,900 = $53,400

There is no option of $53,400 given in the problem. So please cross verify the options given and if you still finds any issue with this answer, please write in the comment box and we will be happy to assist you.