Question

allure company manufactures and distributes two products, m and xy. overhead costs are currently allocated using the number of units produced as the allocation base. the controller has recommended changing to an activity-based costing (abc) system. she has collected the following information: activity cost driver amount m xy production setups number of setups $ 79,000 3 7 material handling number of parts 43,000 64 16 packaging costs number of units 193,000 105,000 45,000 $ 315,000 what is the total overhead allocated to product m using the current system

Answer 1

Unitary cost= $1.83

Step-by-step explanation:

First, we need to calculate the allocation rates:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Production setups= 82,000/20= $4,100 per setup

Material handling= 48,000/80= $600 per part

Packaging costs= 130,000/130,000= $1 per unit

Now, we allocate cost to Product M:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Production setups= 4,100*8= 32,800

Material handling= 600*56= 33,600

Packaging costs= 1*80,000= 80,000

Total= $146,400

Finally, the unitary cost:

Unitary cost= 146,400 / 80,000

Unitary cost= $1.83