Question

Tandem Company manufactures two products (D and F). The overhead costs ($84,000) have been divided into three cost pools that use the following activity drivers:

Product # of Setups Machine Hrs Packing Orders
D 10 500 75
F 10 2,000 175
Cost/pool $11,000 $60,000 $18,750
If the number of machine hours is used to assign machine hour cost, determine the amount of machine hour cost to be assigned to Product D.
a. $60,000
b. $16,800
c. $48,000
d. $12,000

Answer 1

To determine the machine hour cost assigned to Product D, calculate the percentage of machine hours used by Product D and apply it to the total machine hour cost. Product D uses 20% of the total machine hours, so it's allocated 20% of the $60,000 machine hour cost, resulting in $12,000.

Step-by-step explanation:

The question asks us to determine the amount of machine hour cost to be assigned to Product D using the given activity drivers. To calculate this, we need to understand the proportion of machine hours used by Product D in comparison to the total machine hours used by both products. The total cost allocated for machine hours is $60,000.

First, we calculate the total machine hours used by both products:

Next, we find the percentage of machine hours used by Product D:

Percentage for Product D = (Machine hours for Product D / Total machine hours) * 100 = (500 / 2,500) * 100 = 20%

Then, we assign the cost based on this percentage:

Machine hour cost for Product D = 20% of total machine hour cost = 0.20 * $60,000 = $12,000

Therefore, the correct answer is d. $12,000.