Asked by derrick johnson on May 22, 2024
Verified
Aresco Corporation manufactures two products: Product G51B and Product E48X. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products G51B and E48X.
Required:a. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product G51B?b. Using the plantwide overhead rate, what percentage of the total overhead cost is allocated to Product E48X?c. Using theactivity-based costing system, what percentage of the total overhead cost is assigned to Product G51B?d. Using theactivity-based costing system, what percentage of the total overhead cost is assigned to Product E48X?
Plantwide Overhead Rate
A single overhead rate calculated by dividing total factory overhead by a base, used throughout a manufacturing plant for allocating overhead costs to products.
Activity-Based Costing
A method of cost accounting that assigns costs to products or services based on the resources they consume.
Manufacturing Overhead
The indirect costs associated with manufacturing, such as utilities, maintenance, and salaries not directly involved in production.
- Examine the apportionment of manufacturing overhead costs using plantwide and activity-based costing rates.
Verified Answer
Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product G51B is computed as follows:
Using the plantwide overhead rate, the manufacturing overhead cost that would be allocated to Product E48X is computed as follows:
Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product G51B is computed as follows:
Using the plantwide overhead rate, the percentage of the total overhead cost allocated to Product E48X is computed as follows:
c. & d. The activity rates would be computed as follows for the activity-based costing system:
The overhead cost charged to Product G51B under the activity-based costing system is:
The overhead cost charged to Product E48X under the activity-based costing system is:
Using the activity-based costing system, the percentage of the total overhead cost that is assigned to Product G51B is computed as follows:
Using the activity-based costing system, the percentage of the total overhead cost that is assigned to Product E48X is computed as follows:
Learning Objectives
- Examine the apportionment of manufacturing overhead costs using plantwide and activity-based costing rates.
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