Allure Company manufactures and distributes two products, M and XY

Accounting Sep 26, 2020

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

Activity Cost Driver Amount M XY Production setups Number of setups $ 76,000 9 21 Material handling Number of parts 57,000 56 24 Packaging costs Number of units 234,500 90,000 60,000 $367,500

What is the total overhead allocated to Product XY using the current system?

Expert Solution

Total overhead allocated to Product XY using the current system is as follows:

The total overhead allocated to Product XY= Total Overhead Cost / number of units produced in total * Number of Units of Product XY

= 367500/ (90000+ 60000)* 60000

= 147000

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