Question

In: Accounting

PROBLEM - "ABC" A company manufactures Product X and Product Y in the same factory. Overhead...

PROBLEM - "ABC"
A company manufactures Product X and Product Y in the same factory. Overhead costs are currently allocated using direct labor hours, but the accounting manager has recommended an activity-based costing system using the data in the table provided below. Answer the following two questions: a) determine the amount of overhead to be allocated to each type of product under activity-based costing; b) determine the amount of overhead to be allocated to each type of product using labor hours as the allocation base. Assume 60,000 labor hours were used to manufacture Product X and 20,000 labor hours were used to manufacture Product Y.

       Activity Level

Activity

Cost Driver

Cost

ProductX

Product Y

Production Setup

# of production setups

$ 100,000

              12

                    8

Material Handling

# of parts

$ 20,000

              70

                  30

Shipping

# of units shipped

$ 160,000

    120,000

        140,000

       TOTAL OVERHEAD

$ 280,000

Solutions

Expert Solution

a.) Product X Product Y
Production Setup                                     60,000                                     40,000
Material Handling                                     14,000                                        6,000
Shipping                                     73,846                                     86,154
Overhead allocated $                                  147,846                                  132,154
Working
Product X Product Y
Production Setup =100000*12/20 =100000*8/20
Material Handling =20000*70/100 =20000*30/100
Shipping =160000*120000/260000 =160000*140000/260000
Overhead allocated                                  147,846                                  132,154
b.) Predetermined overhead rate $ 3.50 =280000/(60000+20000)
( Per Labor Hour )
Overhead allocated
Product X $ 210,000 =3.5*60000
Product Y $ 70,000 =3.5*20000

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