Immen Corporation manufactures two products: Product B82O and Product P99Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B82O and P99Y.
| Activity Cost Pool | Activity Measure | Total Cost | Total Activity | ||
| Machining | Machine-hours | $ | 330,000 | 15,000 | MHs |
| Machine setups | Number of setups | $ | 300,000 | 500 | setups |
| Product design | Number of products | $ | 46,000 | 2 | products |
| General factory | Direct labor-hours | $ | 330,000 | 10,000 | DLHs |
| Activity Measure | Product B82O | Product P99Y |
| Machine-hours | 7,000 | 8,000 |
| Number of setups | 200 | 300 |
| Number of products | 1 | 1 |
| Direct labor-hours | 3,000 | 7,000 |
Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P99Y?
Total overhead cost = Machining + Machine setups + Product design + Order size
= 330,000+300,000+46,000+330,000
= 1,006,000
Plant wide overhead rate = Total overhead cost / Estimated direct labor hours
= 1,006,000/10,000
= $100.60 per direct labor hour
Manufacturing overhead cost to be allocated to product pggy = Plant wide overhead rate x Actual direct labor hours used by product pggy
= 100.60 x 7,000
= $704,200
First option is correct option.
Kindly comment if you need further assistance. Thanks‼!
| Plantwide overhead rate = (330000+300000+46000+330000)/10000= $100.6 | |||||||
| Manufacturing overhead cost allocated to Product P99Y = 7000*100.6= $704200 | |||||||
Immen Corporation manufactures two products: Product B820 and Product P99Y