Question

Paris, Inc, Produces two products, Product A and Product B. If currently allocates overhead costs using direct-labor hours, but the controller has recommended an activity-based costing (ABC) system using the following data:

			Activity Level
Activity	Cost-Driver Base	Cost	Product A	Product B
Production setup	Number of setups	90,000	11	19
Materials handing & requisition	Number of parts per unit	15,000	6	18
Packaging & shipping	Number of units shipped	45,000	60,000	120,000
Total overhead		150,000

A, Compute the amount of overhead to be allocated to each product using direct-labor hours as the allocation base. Assume that the number of direct-labor hours required to assemble each unit 0.5 per unit for Product A and 1.0 per unit for Product B. The company produces 60,000 units of Product A and 120,000 units of Products B. Please, show processes how to calculate them

Answer 1

A
	Product A	Product B	Total
Units Produced	60000	120000
X Direct-labor hours per unit	0.5	1
Total Direct-labor hours required	30000	120000	150000
Total overhead	150000
Divide by Total Direct-labor hours	150000
Overhead rate	1
	Product A	Product B
Total Direct-labor hours required	30000	120000
X Overhead rate	1	1
Overhead allocated	30000	120000