Question

1)

Bippus Corporation manufactures two products: Product X08R and Product P56L. 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 X08R and P56L.

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	247,000	13,000	MHs
Machine setups	Number of setups	$	60,000	150	setups
Product design	Number of products	$	56,000	2	products
Order size	Direct labor-hours	$	260,000	10,000	DLHs

Activity Measure	Product X08R	Product P56L
Machine-hours	10,000	3,000
Number of setups	110	40
Number of products	1	1
Direct labor-hours	6,000	4,000

Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L?

A) $311,500

B) $373,800

C) $249,200

D) $418,000

2)

Ben Corporation manufactures two products: Product E05G and Product L64Y. 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 E05G and L64Y.

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Machining	Machine-hours	$	285,000	15,000	MHs
Machine setups	Number of setups	$	180,000	300	setups
Product design	Number of products	$	64,000	2	products
Order size	Direct labor-hours	$	350,000	10,000	DLHs

Activity Measure	Product E05G	Product L64Y
Machine-hours	12,000	3,000
Number of setups	170	130
Number of products	1	1
Direct labor-hours	3,000	7,000

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product E05G is closest to:

A) 27.87%

B) 19.00%

C) 30.00%

D) 50.00%

Answer 1

1. Predetermined overhead rate = Estimated overhead/Estimated direct labor hours = (247,000+60,000+56000+260,000)/10,000 = 62.30 per direct labor hour Overhead allocated to product P56L = 4,000 hours * 62.30 = $249,200

2. Predetermined overhead rate = Estimated overhead/Estimated direct labor hours = (285,000+180,000+64,000+350,000)/10,000 hours = 879,000/10,000 = 87.90 per direct labor hour Overhead allocated to product E05G = 3000 hours * 87.90 = 263,700 Percentage of total Overhead = 263,700/879,000 = 30%