Question

Windsor Co. incurs $1110375 of overhead costs each year in its three main departments, machining ($630000), inspections ($315000) and packing ($165375). The machining department works 4000 hours per year, there are 600 inspections per year, and the packing department packs 1000 orders per year. Information about Windsor’s two products is as follows: Product X Product Y Machining hours 1000 3000 Inspections 100 500 Orders packed 350 650 Direct labor hours 1700 1800 If traditional costing based on direct labor hours is used, how much overhead is assigned to Product X this year?

Answer 1

$539,325 is assigned to Product X this year.

Step-by-step explanation:

First determine the overhead absorption rate.

overhead absorption rate = budgeted overheads ÷ budgeted labor hours

= $1,110,375 ÷ (1,700 + 1,800)

= $317.25 per labor hour.

Then find Overhead Assigned to Product X

Overhead Assigned to Product X = overhead absorption rate × activity

= $317.25 × 1,700

= $539,325