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 16 24 Material handling Number of parts 58,000 64 16 Packaging costs Number of units 300,500 105,000 70,000 $ 437,500 What is the total overhead allocated to Product XY using the current system?

Answer 1

$239,300

Explanation:

As per the data given in the question,

Activity Cost driver Amount M XY Total

Production setup No. of setups $79,000 16 24 40

Material handling No. of parts $58,000 64 16 80

Packaging cost No. of units $300,500 $105,000 $70,000 $175,000

$437,500

Allocation of Product XY :

Production setup $79,000 ÷ 40 × 24 $47,400

Material handling $58,000 ÷ 80 × 16 $11,600

Packaging cost $300,500 ÷ $175,000 × $105,000 $180,300

Total overhead $239,300

We simply added the production setup, material handling and packaging cost