Question

Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	330,000	15,000	MHs
Machine setups	Number of setups	$	300,000	500	setups
Product design	Number of products	$	46,000	2	products
General factory	Direct labor-hours	$	330,000	10,000	DLHs

Activity Measure	Product B82O	Product P99Y
Machine-hours	7,000	8,000
Number of setups	200	300
Number of products	1	1
Direct labor-hours	3,000	7,000

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P99Y?

Answer 1

Total overhead cost = Machining + Machine setups + Product design + Order size

= 330,000+300,000+46,000+330,000

= 1,006,000

Plant wide overhead rate = Total overhead cost / Estimated direct labor hours

= 1,006,000/10,000

= $100.60 per direct labor hour

Manufacturing overhead cost to be allocated to product pggy = Plant wide overhead rate x Actual direct labor hours used by product pggy

= 100.60 x 7,000

= $704,200

First option is correct option.

Kindly comment if you need further assistance. Thanks‼!