Question

Merone Company allocates materials handling cost to the company's two products using the below data:

Modular Homes Prefab Barns
Total expected units produced 6500 9500
Total expected material moves 650 250
Expected direct labor-hours per unit 850 350
The total materials handling cost for the year is expected to be $265,500.

If the materials handling cost is allocated on the basis of direct labor-hours, the total materials handling cost allocated to the prefab barns is closest to: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Material handling cost allocated to Prefab Barns= $99,750

Step-by-step explanation:

Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers.

Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.

Activity rate per driver is calculated as:

Activity overhead for the period / Total cost drivers for the period

Using direct labour hours, the material handling cost can allocated as follows:

Total direct labour hours

(850 ×6500) +(9500×350) =8850000

Material handing cost allocated to Prefab =

(9500×350)/8850000 × $265,500 =$99750

Material handling cost allocated to Prefab Barns= $99,750