Question

Boswell Company manufactures two products, Regular and Supreme. Boswell's overhead costs consist of machining,

$3400000; and assembling cost based on number of parts, $1700000. Information on the two products is:
Regular Supreme
Direct labor hours 10000 15000
Machine hours 10000 30000
Number of parts 90000 160000
Overhead applied to Regular using activity-based costing is
a) $3638000.
b) $1462000.
c) $2040000.
d) $3060000.

Answer 1

To calculate the overhead costs applied to the Regular product using activity-based costing, we find the overhead rate for both machining and assembling activities and then apply those rates to the Regular product. The total overhead applied to Regular is $1,462,000.

Step-by-step explanation:

The question relates to the calculation of overhead costs applied to the Regular product using activity-based costing (ABC) in manufacturing. The Boswell Company has two overhead activities: machining and assembly, with respective costs of $3,400,000 and $1,700,000.

The cost drivers are machine hours and the number of parts, with the Regular product consuming 10,000 machine hours and 90,000 parts. To calculate the overhead applied to Regular using ABC, we need to calculate the overhead rate for each activity and then multiply the rate by the amount of cost driver used by Regular.

For machining, the rate is $3,400,000 / (10,000 Regular + 30,000 Supreme machine hours) = $85 per machine hour. For assembly, the rate is $1,700,000 / (90,000 Regular + 160,000 Supreme parts) = $6.80 per part. Now, we apply these rates to Regular: Machining cost for Regular = 10,000 hours * $85/hour = $850,000.

Assembly cost for Regular = 90,000 parts * $6.80/part = $612,000. So, total overhead applied to Regular = $850,000 + $612,000 = $1,462,000.