Meli Corporation manufactures two products: Product L61P and Product B60E. The c
ID: 2577687 • Letter: M
Question
Meli Corporation manufactures two products: Product L61P and Product B60E. 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 L61P and B60E. Activity Cost Pool Activity Measure Total Cost Total Activity Machining Machine-hours $ 280,000 14,000 MHs Machine setups Number of setups $ 225,000 450 setups Product design Number of products $ 84,000 2 products General factory Direct labor-hours $ 310,000 10,000 DLHs Activity Measure Product L61P Product B60E Machine-hours 6,000 8,000 Number of setups 290 160 Number of products 1 1 Direct labor-hours 7,000 3,000 Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product L61P is closest to:
10.34%
70.00%
31.37%
50.00%
Explanation / Answer
Percentage of the total overhead cost allocated to Product L61P =7000/(7000+3000)= 70% Option 2 is correct