Question

Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Titanium Aluminum Total Cost Assembly 500 mach. hours 500 mach. hours $45,000 Inspections 350 150 $75,000 2,100 labor hours 1,900 labor hours Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much "assembly cost is assigned to titanium racquets"?

Answer 1

$22,500

Step-by-step explanation:

Activity based costing (ABC) is a method of cast allocation where the overheads and other indirect costs are allocated to products and services based on the volume of different activities consumed by each product.

The total cost pool is divided by the defined cost drivers to determine the cost driver rate.

Titanium Hours Aluminium hours Cost

Assembly 500 500 1000 45000

Inspection 350 150 500 75000

Labor hours 2100 1900 4000 120000

Cost per labor hour = 120000/4000= 30

Using activity based costing , portion of the assembly cost assigned to titanium Racquets = Titanium assembly hours / total assembly hours * total assembly cost

500/1000*45000

=22,500