Question

Bluefield Corp. has two product lines, A and B. Bluefield has identified the following information about its overhead and potential cost drivers: Total overhead$69,300 Cost drivers Number of labor hours1,900 Number of machine hours45,000 Required: 1. Suppose Bluefield Corp. uses a traditional costing system with number of labor hours as the cost driver. Determine the amount of overhead assigned to each product line if Product A requires 76 percent of the labor hours and Product B requires 24 percent. 2. Suppose Bluefield uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line if Product A consumes 17,700 machine hours and Product B consumes 27,300.

Answer 1

Overhead assigned to product labour hours

Product A = $36.5 per hour × 76%× 1900= 52,706.0

Product B = $36.5 per hour × 24%× 1900= 16,644.0

Overhead assigned to product using machine hours

Product A = $1.54 × 17,700= $27,258

Product B = $1.54 × 27,300 =$42,042

Step-by-step explanation:

Under the traditional absorption costing system, overhead is assigned to units produced using the direct labour hours or machine hours basis.

Overhead absorption rate = Budgeted overhead for the period/Budgeted labour hours

OAR = $69,300 /1,900 hours

= $36.5 per hour

Overhead assigned to product

Product A = $36.5 per hour × 76%× 1900= 52,706.0

Product B = $36.5 per hour × 24%× 1900= 16,644.0

Overhead absorption rate = Budgeted overhead for the period/Budgeted machine hours

OAR = $69,300 /45,000 hours= $1.54 per hour

Overhead assigned to product

Product A = $1.54 × 17,700= $27,258

Product B = $1.54 × 27,300 =$42,042