Question

Boahn, Inc., manufactures and sells two products: Product B6 and Product W8. Data concerning the expected...

Boahn, Inc., manufactures and sells two products: Product B6 and Product W8. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:


Expected Production
Direct Labor-Hours Per Unit
Total Direct Labor-Hours
Product B6 200 7.0 1,400
Product W8 100 9.0   900
Total direct labor-hours 2,300



The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Estimated Expected Activity

Activity Cost Pools
Activity Measures
Overhead Cost

Product B6

Product W8

Total
Labor-related DLHs $91,149 1,400 900 2,300
Machine setups setups 54,549 500 400 900
General factory MHs   329,550 3,200 3,300 6,500
$475,248



If the company allocates all of its overhead based on direct labor-hours using its traditional costing method, the overhead assigned to each unit of Product W8 would be closest to:

a) $1,859.67 per unit

b) $356.67 per unit

c) $545.49 per unit

d) $456.30 per unit

Homework Answers

Answer #1

a) $1,859.67 per unit

Working:

a) Overhead rate based on direct labor hours = Total Overhead costs/Total Direct Labor hours
= $     4,75,248 / 2300
= $       206.63
b) Overhead assigned to product W8 = Direct labor hours x Recovery rate
= 900 x $ 206.63
= $1,85,966.61
c) Overhead per unit of W8 = Overhead assigned to W8/Units of W8
= $1,85,966.61 / 100
= $     1,859.67
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