Question

Please explain how to get the following answer from this question:

Vandalay Industries manufactures two​ products: toasters and blenders. The annual production and sales of toasters is 2,100 units, while 1,600 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per​ unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $147,215. The company is looking at the possibility of changing to an activity−based costing system for its products. If the company used an activity−based costing​ system, it would have the following three activity cost​ pools:

Estimated Activity

Activity Cost Pool	Estimated Overhead Cost	Toasters	Blenders	Total
Setup costs	$8,485	205 batches	410 batches	615 batches
Engineering costs	$68,980	900 engineering	820 engineering hours	1,720 engineering hrs
Maintenance costs	$69,750	2,760 direct labor hours	1,195 direct labor hours	3,955 direct labor hours
Total	$147,215

The overhead cost per blender using an activity−based costing system would be closest to​ (Round all answers to two decimal​ places.)

A. $92.01

B. $28.39

C. $54.75

D. $37.26

Correct answer: D

Answer 1

Answer : Option - D, $37.26

Explanation :

Calculation of the overhead cost per blender using an activity−based costing system :

Setup costs = $8,485 x (410 batches / 615 batches) = $5,656.67

Engineering costs = $68,980 x (820 eng. hours / 1,720 eng. hrs) = $32,885.81

Maintenance costs = $69,750 x (1,195 labor hours / 3,955 labor hours) = $21,074.90

Total Overhead cost as per activity based costing

= $5,656.67 + $32,885.81 + $21,074.90

= $59,617.38

Overhead cost per blender = Total Overhead cost / Units of blenders are produced

= $59,617.38 / 1,600 units

= $37.26