Question

Lorenzo has been allocating MOH costs to their three different products using a single plant-wide rate of $22 per DL hour. Their CPA firm has suggested a switch to the following activity-based rates: $15 per production run, $18 per direct labor hour and $10 per inspection hour. If the most recent job required 10 production runs, 200 DL hours and 20 inspection hours, how much MOH would be allocated using the ABC method?

Answer 1

Using activity-based costing, Lorenzo would allocate a total of $3,950 in manufacturing overhead to the recent job, which includes costs for production runs, direct labor, and inspection hours.

Step-by-step explanation:

The student has been allocating manufacturing overhead (MOH) costs using a single rate but is now considering switching to an activity-based costing (ABC) method.

To calculate the MOH using the ABC method for the most recent job, which required 10 production runs, 200 direct labor hours, and 20 inspection hours with the rates of $15 per production run, $18 per direct labor hour, and $10 per inspection hour, you would use the following calculations:

• Cost per production run: 10 runs x $15/run = $150
• Cost per direct labor hour: 200 DL hours x $18/DL hour = $3600
• Cost per inspection hour: 20 inspection hours x $10/inspection hour = $200

To find the total MOH allocated using the ABC method, simply add these amounts together: $150 + $3600 + $200 = $3,950.