Question

ocket Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below.

Activity	Cost			Cost Driver
Material handling	$	225,000		Number of parts
Material insertion		2,475,000		Number of parts
Automated machinery		840,000		Machine hours
Finishing		170,000		Direct labor hours
Packaging		170,000		Orders shipped
Total	$	3,880,000

The following information pertains to the three product lines for next year:

	Economy				Standard				Deluxe
Units to be produced		10,000				5,000				2,000
Orders to be shipped		1,000				500				200
Number of parts per unit		10				15				25
Machine hours per unit		1				3				5
Labor hours per unit		2				2				2

Assume that Rocket is using a volume-based costing system, and the preceding overhead costs are applied to all products on the basis of direct labor hours. The overhead cost that would be assigned to the Standard product line is closest to:

Multiple Choice

• $456,471.

• $646,471.

• $961,176.

• $1,141,176.

• None of the answers is correct.

Answer 1

Total direct labor hours

= Economy (10,000*2) + Standard (5,000*2) + Deluxe (2,000*2) = 20,000 + 10,000 + 4,000 = 34,000 dlh

Overhead rate = Overhead cost/Total direct labor hours

= 3,880,000/34,000 = 114.18

Overhead cost allocated to standard product line

= (5,000*2) * 114.18

= 1,141,176 (nearest)

Option D