Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities—production setup, material handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities:
| Activity | Cost | Activity Base |
| Production setup | $250,000 | Number of setups |
| Material handling | 150,000 | Number of parts |
| General overhead | 80,000 | Number of direct labor hours |
Each product's total activity in each of the three areas are as
follows:
| Product A | Product B | |
| Number of setups | 100 | 300 |
| Number of parts | 40,000 | 20,000 |
| Number of direct labor hours | 8,000 | 12,000 |
What is the total overhead allocated to Product B using
activity-based costing?
a.$292,500
b.$135,000
c.$175,000
d.$285,500
The correct answer is d.$285,500
Notes:
| Product A | Product B | Total | |
| Number of setups | 100 | 300 | 400 |
| Number of parts | 40,000 | 20,000 | 60,000 |
| Number of direct labor hours | 8,000 | 12,000 | 20,000 |
| Activity | Cost | Activity Base | Total Activity | Activity rate( Cost / Activity) | Activity of B | total overhead allocated to Product B (Activity Rate * Activity of B) |
| Production setup | 2,50,000 | Number of setups | 400 | 625.00 | 300 | 187,500 |
| Material handling | 1,50,000 | Number of parts | 60000 | 2.50 | 20000 | 50,000 |
| General overhead | 80,000 | Number of direct labor hours | 20000 | 4.00 | 12000 | 48,000 |
| total overhead allocated to Product B | 285,500 | |||||
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