Question

Tom Company incurs overhead costs each year in its three main departments, setup ($70,000), machining ($34,000), and packing ($56,000). Information about the company's two products is as follows:

	Product A1	Product B1	Total
Number of setups	7	33	40
Machining hours	2,800	2,200	5,000
Orders packed	280	220	500
Number of products manufactured	560	440	1,000

If machining hours are used as a base under traditional costing, how much overhead is assigned to Product A1?

Answer 1

Ans.	Calculation of overhead assiged to the product A1, under traditional costing:
	Particulars				Amt.($)
	Setup Costs ($70,000 x 7/40)				12,250
	Machine hour costs ($34,000 x 2,800/5,000)				19,040
	Packing costs ($56,000 x 280/500)				31,360
	Total overhead costs				$        62,650
	Overhead cost per unit ($62,650 / 560 )				$        111.88