45. Leather Company makes two types of women\'s handbags. Making a standard hand
ID: 2465572 • Letter: 4
Question
45. Leather Company makes two types of women's handbags. Making a standard handbag requires 2 hours of labor while making a deluxe handbag requires 5 hours of labor. During the next year, the company expects to make 2,000 standard handbags and 500 deluxe handbags. Indirect manufacturing costs are expected to be $52,000. Based on this information: A. $8 of overhead cost should be allocated to each handbag of both types. B. $20.80 of overhead cost should be allocated to each handbag of both types. C. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag. D. None of these
Explanation / Answer
Total indirect cost to be allocated = 52000
Total hours required to manufacture handbags = ( 2000*2 hours) + ( 500*5 hours)
= 4000+2500 i.e 6500
Idirect cost per hour = 52000/6500 i.e 8 per hour
Cost allocated to standard handbags = 8*2 i.e 16 per handbag
Cost alloated to deluxe handbag = 8*5 i.e 40 per handbag
16 of overhead cost should be allocated to stadard handbag and 40 of overhead cost should be allocated to deluxe handbag