Question

Kulka Corporation manufactures two products Product F82D and Product TO5P. 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 F82D and TO5P.

 

Using the ABC system, how much total manufacturing overhead cost would be assigned to Product TOSP?

Multiple Choice 

• $147,000

• $304,500 

• $156,000

• $303,000

Answer 1

Using the ABC system, total manufacturing overhead cost assigned to Product T05P = $303000

Calculation:

Activity rate:

1. Machining = Total cost / Total activity

= $180000 / 9000 machine-hours

= $20 per machine-hour

2. Machine-setups = Total cost / Total activity

= $125000 / 250 setups

= $500 per setup

3. Product design = Total cost / Total activity

= $44000 / 2 products

= $22000 per product

4. Order size = Total cost / Total activity

= $260000 / 10000 direct labor-hours

= $26 per direct labor-hour

ABC cost (Product T05P):

1. Machining = Machine-hours * Activity rate

= 4000 machine-hours * $20 per machine-hour

= $80000

2. Machine-setups = Number of setups * Activity rate

= 90 setups * $500 per setup

= $45000

3. Product design = Number of products * Activity rate

= 1 product * $22000 per product

= $22000

4. Order size = Direct labor-hours * Activity rate

= 6000 direct labor-hours * $26 per direct labor-hour

= $156000

Total manufacturing overhead cost assigned to Product T05P:

= $80000 + $45000 + $22000 + $156000

= $303000