Question

9)

younger, Inc. manufactures recliners for the hotel industry. It has two products, the Heater and the Massager, and total overhead is $3,160,000. The company plans to manufacture 400 Heaters and 100 Massagers this year. In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company’s employees work 1,400 direct labor hours on the Heater product and 3,400 on the Massager. Younger’s total material handling costs are $2,000,000 and its total processing costs are $1,160,000. Using ABC, how much overhead would be assigned to the Heater product?

a.

$1,307,500

b.

$2,238,332

c.

$1,852,500

d.

$1,580,000

10)

one of Stine Company’s activity cost center is machine setups, with estimated overhead of $360,000. Stine produces sparklers (300 setups) and lighters (700 setups). How much of the machine setup cost center should be assigned to sparklers?

a.

$360,000

b.

$108,000

c.

$144,000

d.

$252,000

Answer 1

Ans. 9	Option C   $1,852,500
	*WORKING   NOTES :
	*Calculation of Total activity :
	Activity cost pools	Cost driver	Heater   (a)	Massager (b)	Total activity (a+b)
	Material handling	Number of material moves	600	400	1000
	Processing	Number of purchase orders	900	700	1600
	*Calculation of Activity rate :
	Activity cost pools	Total overhead cost (a)	Total activity (b)	Activity rate (a/b)
	Material handling	$2,000,000	1000	$2,000.00
	Processing	$1,160,000	1600	$725.00
	*Calculations for overhead cost assigned:
	Activity cost pool	Activity rate (a)	Activity of Heater (b)	Cost assigned (a*b)
	Material handling	$2,000.00	600	$1,200,000
	Processing	$725.00	900	$652,500
	Total Overhead Cost Assigned			$1,852,500
Ans. 10	Option B   $108,000
	*WORKING   NOTES :
	*Calculation of Total activity :
	Activity cost pools	Cost driver	Sparklers   (a)	Lighters (b)	Total activity (a+b)
	Machine setup	Number of setups	300	700	1000
	*Calculation of Activity rate :
	Activity cost pools	Total overhead cost (a)	Total activity (b)	Activity rate (a/b)
	Machine setup	$360,000	1000	$360.00
	*Calculations for overhead cost assigned:
	Activity cost pool	Activity rate (a)	Activity of Sparklers (b)	Cost assigned (a*b)
	Machine setup	$360.00	300	$108,000
	Total Overhead Cost Assigned			$108,000