Asked by Tiana Hailey on May 19, 2024
Verified
Arrojo Corporation manufactures two products: Product X71B and Product C91I. 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 X71B and C91I. 
Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?
A) $416,500
B) $499,800
C) $333,200
D) $372,000
Plantwide Overhead Rate
A single overhead absorption rate used throughout a factory or plant for allocating overhead costs to products.
Activity-based Costing
An accounting method that identifies the activities that incur costs and then assigns indirect costs to products based on their use of those activities.
- Appreciate the consequence of utilizing Activity-Based Costing on the cost structuring of products compared with old-school costing techniques.
Verified Answer
JE
Jahongir ErgashevMay 25, 2024
Final Answer :
B
Explanation :
Using the plantwide overhead rate, the total overhead cost is divided by the total direct labor-hours:
($1,249,400 ÷ 25,000 DLHs = $49.98/DLH)
Product X71B:
Direct labor-hours = 8,336 DLHs
Manufacturing overhead allocated = ($49.98/DLH × 8,336 DLHs = $416,500)
Product C91I:
Direct labor-hours = 16,664 DLHs
Manufacturing overhead allocated = ($49.98/DLH × 16,664 DLHs = $833,300)
Total overhead allocated = ($416,500 + $833,300 = $1,249,800)
($1,249,400 ÷ 25,000 DLHs = $49.98/DLH)
Product X71B:
Direct labor-hours = 8,336 DLHs
Manufacturing overhead allocated = ($49.98/DLH × 8,336 DLHs = $416,500)
Product C91I:
Direct labor-hours = 16,664 DLHs
Manufacturing overhead allocated = ($49.98/DLH × 16,664 DLHs = $833,300)
Total overhead allocated = ($416,500 + $833,300 = $1,249,800)
Learning Objectives
- Appreciate the consequence of utilizing Activity-Based Costing on the cost structuring of products compared with old-school costing techniques.