Question

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Isadore's Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data: Cost Driver Volume Pencils Pens 18 38 Activity Setting up Inspecting Packing and shipping Total overhead Cost Driver Number of setups Number of parts Number of boxes shipped Cost $ 96.299 30,800 42, eee $ 168,800 40,000 65,000 Required: a. Compute the amount of overhead to be allocated to each product under activity-based costing. b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.2 for pencils and 0.2 for pens and that 40,000 boxes of pencils and 65,000 boxes of pens were produced during the period. Complete this question by entering your answers in the tabs below. Required A Required B Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.) Overhead Pencils Pens Required A Required B >

Answer 1

& protuct ustag Amount of overhead to be allocgled to each Igbouw hours as the allocation byse. To allocate overhea's costs to each product using sbour hours as bare we should have to glelyle the total direct Igboyu hours. It will help to allocate the overheat cest to each prolyct as the laboy, hayas invester Direct Hoys labout to each Pwych Boxes by the Produced X product Labour Hour required to assemble box : Direct Direct labours for Pencil = 40000 boxes x 0.2 haws 2000 Labours for Peg = 65000 boxes X 0.2 hayes - 13000 - Total Direct labour Hars. 21000

Allocation of Overhead costs to each product - Toty) Overhead X costs Labour Hogus Total Labour Overhead cost of Penul : 168800 X 8000 hours 2100 hours = 64305 Overhead cost of : 168800 X = 104495 13000 hayus 21000 hours Pen