Question

Clear View Company incurs overhead costs each year in its three main departments, setup ($130,000), machining ($58,000), and packing ($92,000). Information about the company's two products is as follows: Product A1 Product B1 Total Number of setups 19 21 40 Machining hours 4,100 900 5,000 Orders packed 400 100 500 Number of products manufactured 800 200 1,000 Using ABC, how much overhead is assigned to Product A1?

Answer 1

The overhead assigned to Product A1 using Activity-Based Costing is $183,910, derived from calculating the costs for setups, machining hours, and packing orders specifically attributed to Product A1.

Step-by-step explanation:

To calculate the overhead assigned to Product A1 using Activity-Based Costing (ABC), we need to allocate the total overhead costs to each product based on the activities that drive those costs. There are three main cost pools: setup, machining, and packing.

• Setup Costs: The setup overhead rate per setup is $130,000 / 40 = $3,250. Product A1 has 19 setups, so its setup cost is 19 x $3,250 = $61,750.
• Machining Costs: The machining overhead rate per machine hour is $58,000 / 5,000 = $11.60. Product A1 has 4,100 machine hours, so its machining cost is 4,100 x $11.60 = $47,560.
• Packing Costs: The packing overhead rate per order is $92,000 / 500 = $184. Product A1 has 400 orders packed, so its packing cost is 400 x $184 = $73,600.

Adding up these costs, the total overhead assigned to Product A1 is $61,750 (setup) + $47,560 (machining) + $73,600 (packing) = $183,910.

Product A1 is assigned an overhead of $183,910 using Activity-Based Costing, calculated by summing up the costs allocated based on the number of setups, machining hours, and orders packed.