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 $ 82,000 8 12 Material handling Number of parts 48,000 56 24 Packaging costs Number of units 130,000 80,000 50,000 $ 260,000 What is the total overhead allocated to Product XY using the current system

Answer 1

$113,600

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:-

Particular Activity cost driver Amount Product M Product XY Total

Production setup No. of prod. $82,000 8 12 20

Material handling No. of parts $48,000 56 24 80

Packaging costs No. of units $1,30,000 80,000 50,000 130,000

$2,60,000

Allocation to Product XY

Production Set up = Production Set up Amount ÷ Number of Total Production Set up × Number of Product XY Setup

= $82,000 ÷ 20 × 12

= $49,200

Material Handling = $48,000 ÷ 80 × 24 = $14,400

Packaging Costs = $130,000 ÷ 130,000 × 50,000 = $50,000

Total overhead = Production Set up + Material Handling + Packaging Costs

= $49,200 + $14,400 + $50,000

= $113,600