Question
In: Accounting
Assume a company that uses activity-based costing (ABC) has only two products – A and B....
Assume a company that uses activity-based costing (ABC) has only
two products – A and B. The company does not have any
organization-sustaining activities or unused capacity costs. The
company’s total manufacturing overhead cost of $56,000 has been
allocated to the three activities shown below:
| Setups | Machining | Packing Orders | |||||||||
| Activity measure quantity: Product A | 20 | 1,000 | 150 | ||||||||
| Activity measure quantity: Product B | 20 | ? | 350 | ||||||||
| Overhead cost per activity cost pool | ? | ? | $ | 10,000 | |||||||
| Activity rate | $ | 150 | per setup | $ | 8 | per MH | ? | ||||
If the company decided to use a plantwide overhead rate with machine-hours as the allocation base, what would be its plantwide overhead rate?
Solutions
Expert Solution
Answer:
Plantwide overhead rate = $ 11.20
Calculations:
If we complete the table, we get:
| Setups | Machining | Packing Orders | |
| Activity measure quantity: Product A | 20.0 | 1,000.0 | 150.0 |
| Activity measure quantity: Product B | 20.0 | 4,000.0 | 350.0 |
| Overhead cost per activity cost pool | $ 6,000.0 | $ 40,000.0 | $ 10,000.0 |
| Activity rate | $ 150.0 | $ 8.0 | $ 20.0 |
Note:
We can observe that total machine hours = 4,000 + 1000 = 5,000
Plantwide overhead rate = $ 56,000 / 5,000 = $ 11.2
In case of any doubt or clarification, you're welcome to come back via comments.
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