Ch. 7 Quiz Hails Corporation manufactures two products: Product Q21F and Product
ID: 2391271 • Letter: C
Question
Ch. 7 Quiz Hails Corporation manufactures two products: Product Q21F and Product H44W. 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 Q21F and H44W Activity Cost Pool Activity Measure Total Cost Total Activity Machining Machine setups Product design order size 195, 000 13,000 MHs Machine-hours Number of setups 90,000 150 setups Number of products S 64,000 Direct labor-hourss 280, 000 10,000 DLHs products Activity Measure Product Q21F Product H44W 9,000 80 4,000 70 Machine-hours Number of setups Number of products Direct labor-hours 6,0004, 000 Using the ABC system, the percentage of the total overhead cost that is assigned to Product H44VV is closest to:Explanation / Answer
Solution:
% of overhead allocated to Product H44W = $246,000 / $629,000 = 39.11%
Hence last option is correct.
Determination of activity rate for each activity & allocation of overhead Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Q21 F H44W Usage Allocated Costs Usage Allocated Costs Machining $195,000.00 Machine hours 13000 $15.00 9000 $135,000.00 4000 $60,000.00 Machine Setups $90,000.00 Nos of setups 150 $600.00 80 $48,000.00 70 $42,000.00 Product Design $64,000.00 Nos of products 2 $32,000.00 1 $32,000.00 1 $32,000.00 Order Size $280,000.00 Direct labor hours 10000 $28.00 6000 $168,000.00 $4,000.00 $112,000.00 Total $629,000.00 $383,000.00 $246,000.00