Question

Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso’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	$50000
Inspections	350	150	$90000
	2100 labor hours	1900 labor hours

Reynoso is considering switching from one overhead rate based on labor hours to activity-based costing.
Using activity-based costing, how much assembly cost is assigned to titanium racquets?

$21000.

$35000.

$25000.

$26250.

Answer 1

Overhead rate applied = Total overhead /total activity hours

                                         = $ 50,000/ (500 + 500) MH

                                         = $ 50,000/1,000 = $ 50 PMH

Overhead cost for assembly of Titanium = No. of machine hours x overhead rate PMH

                                                         = 500 x $ 50 = $ 25,000

Hence option “$ 25,000” is correct answer.