Question

Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available:

                     Cost                          Titanium                          Aluminum            Total Cost

              Assembly           500 mach. hours             500 mach. hours             $45,000

            Inspections                       350                                         150                           $75,000

                                             2,100 labor hours           1,900 labor hours

Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing.

Total overhead costs assigned to titanium racquets, using a single overhead rate, are

Answer 1

Total overheads cost assigned to titanium racuets	=	$      63,000
Workings:
Total Cost
Assembly	=	$      45,000
Inspection	=	$      75,000
Total Cost	=	$ 1,20,000
Total labour hours
Titanium	=	2,100	labour hours
Aluminium	=	1,900	labour hours
Total labour hours	=	4,000	labour hours
Overhead Cost per labour hours	=	$1,20,000 / 4,000 labour hours
	=	$              30
Total overheads cost assigned to titanium racuets	=	2,100 labour hours X $30
	=	$      63,000