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X Company uses an activity-based costing overhead allocation system
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]?
Expert Solution
| 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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