Question

Donna Crawford Co. has identified an activity cost pool to which it has allocated estimated overhead of $1,920,000. It has determined the expected use of cost drivers for that activity to be 160,000 inspections. Widgets require 40,000 inspections, gadgets 30,000 inspections, and targets 90,000 inspections. The overhead assigned to each product is:

(a)Widgets $40,000, gadgets $30,000, targets $90,000.
(b)Widgets $640,000, gadgets $640,000, targets $640,000.
(c)Widgets $360,000, gadgets $480,000, targets $1,080,000.
(d)Widgets $480,000, gadgets $360,000, targets $1,080,000.

Answer 1

The overhead assigned to widgets is $480,000, gadgets is $360,000, and targets is $1,080,000. These figures are determined by multiplying the overhead cost per inspection ($12) with the number of inspections each product requires.

Step-by-step explanation:

The student's question is asking how to allocate the estimated overhead of $1,920,000 based on the expected use of cost drivers for inspections to different products: widgets, gadgets, and targets. To find the overhead assigned to each product, we divide the total overhead by the total expected use of cost drivers and then multiply by the number of inspections required for each product.

The total expected use of cost drivers is 160,000 inspections. The overhead cost per inspection is calculated as follows: $1,920,000 ÷ 160,000 inspections = $12 per inspection.

Now we can calculate the overhead for each product:

• Widgets require 40,000 inspections at $12 each, so the overhead is 40,000 × $12 = $480,000.
• Gadgets require 30,000 inspections at $12 each, so the overhead is 30,000 × $12 = $360,000.
• Targets require 90,000 inspections at $12 each, so the overhead is 90,000 × $12 = $1,080,000.

Therefore, the correct answer to the student's question is (d): Widgets $480,000, gadgets $360,000, targets $1,080,000.