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Homework answers / question archive / X Company uses an activity-based costing overhead allocation system

X Company uses an activity-based costing overhead allocation system

Accounting

X Company uses an activity-based costing overhead allocation system. It has identified three activities and three cost drivers. The activities and budgeted costs are as follows:

 

Activity  Budgeted Cost  

Material Handling $115,000     

Product Testing    50,000     

Machine Maintenance 59,000     

Total      $224,000     

 

The following cost driver information is available for the company's only two products, A and B:

 

Cost Driver   Product A     Product B     Total

pounds of material        19,300       49,900     69,200

tests   29,800       39,400     69,200

machine hours       68,900       27,400     96,300

How much overhead was allocated to Product B [round overhead rate(s) to two decimal places]?

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Calculation of Activity rates
Activity Cost Pool Activity driver Overhead Cost (A) Expected Activity (B) Activity rate (A/B)
 
Product A and B
Material handling Number of pounds of material 115000 69200 1.66 Per pounds of material
Product testing Number of test 50000 69200 0.72 Per test
Machine maintenance Number of machine hour 59000 96300 0.61 Per machine hour

 

Computation of Overhead allocated to Product B:
Activity name Activity Rates Activity ABC Cost
  (A) (B) (A * B)
Material handling 1.66 49900 82926.30
Product testing 0.72 39400 28468.21
Machine maintenance 0.61 27400 16787.12
Total Overheads assigned 128181.63

 

 

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