Question

Tioga Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.

	Lenses		Mirrors
Units produced	22		22
Material moves per product line	17		7
Direct-labor hours per unit	230		230

The total budgeted material-handling cost is $71,720.  

Required:

1. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?
2. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one mirror would be what amount?
3. Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.
4. Under activity-based costing (ABC), the material-handling costs allocated to one mirror would be what amount? The cost driver for the material-handling activity is the number of material moves.

(For all requirements, Do not round your intermediate calculations.)

Answer 1

(a.) Total direct labor hour for lenses = 230*22

= 5060

Total direct labor hour for mirror = 230*22

= 5060

since direct labor hour for both products are same so material handling cost would be allocated equally on both products.

Material handling cost allocated to one lens = Total budgeted material handling cost/(2* Unit produced of lens)

= 71720/(2*22)

= 71720/44

= $ 1630

(b.) Material handling cost allocated to one mirror = 71720/(2*22)

= 71720/44

= 1630

(c) Under Activity based costing allocation base is material moves per product line.

material moves to lens = 17

material moves to mirror = 7

Total material moves = 17 + 7 = 24

material handling cost allocated to lens = total budgeted material handling cost / Total material moves * material moves to lens

= 71720*17/24

= 50801.67

Cost allocated to one lens would be = material handling cost allocated to lens / lenses produced

= 50801.67 / 22

= 2309.167

material handling cost allocated to mirror = total budgeted material handling cost /Total material moves * material moves to mirror

= 71720*7/24

= 20918.33 Cost allocated to one mirror would be = material handling cost allocated to mirror / mirror produced

= 20918.33/22

= 950.83

Please check with your answer and let me know.