Question

A company manufactures three products, Alpha, Beta, and Gama. Total overhead costs amount to $ 560,000. The company allocates these costs to products based on a predetermined overhead rate, calculated by dividing $ 560,000 by the total number of budgeted direct labor hours. This number for the current year is 70,000 hours.

• Alfa used 12,000 hours and 16,000 units were produced

• Beta used 24,000 hours and 19,200 units were produced

• Gama used 34,000 hours and 20,000 units were produced

19. How much overhead cost was distributed per unit of product?

to. Alpha $ 10.14 Beta $ 10.14 Gamma $ 10.14

b. Alpha $ 6.00 Beta $ 10.00 Gamma $ 13.60

c. Alpha $ 10.67 Beta $ 6.40 Gamma $ 4.71

d. Alpha $ 8.00 Beta $ 8.00 Gamma $ 8.00

20. Now suppose that the company adopted ABC and identified three activity groups (pools). The activities, their corresponding cost drivers and their total cost are:

• Machine setup Number of setups $ 160,000

• Inspection Number of batches inspected $ 120,000

• Product termination Number of machine hours used $ 280,000

The amount of each cost driver used by each product was:

• Alpha: 8 setups, 150 batches and 3,000 machine hours

• Beta: 9 setups, 100 batches and 5,000 machine hours

• Range: 3 setups, 50 batches and 2,000 machine hours

The amount of overhead cost that was distributed to each unit of the product was:

to. Alpha $ 10.14 Beta $ 10.14 Gamma $ 10.14

b. Alpha $ 6.00 Beta $ 10.00 Gamma $ 13.60

c. Alpha $ 13.00 Beta $ 13.13 Gamma $ 5.00

d. Alpha $ 5.00 Beta $ 13.00 Gamma $ 13.13

Answer 1

single OH rate uses one cost driver for allocating cost to its products

predetermined OH r ate = Total cost/ Total machine Hour

=$560,000/70,000

=$8 per MH

Cost allocation

	Alpha	Beta	Gamma
cost	$96,000[$8*12,000]	$192,000[$8*24,000]	$272,000[$8*34,000]
No. of units	16,000	19,200	20,000
Cost per unit	$6[$96,000/16,000]	$10[$192,000/19,200]	$13.6[$272,000/20,000]

Answer " b. Alpha $ 6.00 Beta $ 10.00 Gamma $ 13.60

2] ABC costing we will first find cost per activity

Activity	Cost	Total cost driver	Rate per activity
Machine set up	$160,000	20[8+9+3]	$8,000[$160,000/20]per setup
Inspection	$120,000	300[150+100+50]	$400 per batch[$120,000/300]
product termination	$280,000	10,000[3,000+5,000+2,000]	$28 per machine hour [280,000/10,000]

cost allocation

	Alpha	Beta	Gamma
Machine set up	$64,000[$8,000*8]	$72,000[$8000*9]	$24,000[$8000*3]
Inspection	$60,000[$400*150]	$40,000[100*$400]	$20,000[50*$400]
product termination	$84,000[$28*3000]	$140,000[$28*5000]	$56,000[$28*2000]
TOTAL COST ALLOCATED	$208,000	$252,000	$100,000
NO. OF UNITS	16,000	19,200	20,000
COST PER UNIT	$13[$208,000/16,000]	$13.125[$252,000/19,200]	$5[$100,000/20,000]

c. Alpha $ 13.00 Beta $ 13.13 Gamma $ 5.00

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