Question

Isadore’s Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data:

					Cost Driver Volume
Activity	Cost Driver	Cost			Pencils	Pens
Setting up	Number of setups	$	84,600		19	28
Inspecting	Number of parts		27,900		4	5
Packing and shipping	Number of boxes shipped		72,000		40,000	80,000
Total overhead		$	184,500

Required:

a. Compute the amount of overhead to be allocated to each product under activity-based costing. (Do not round intermediate calculations.)

b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.2 for pencils and 0.1 for pens and that 40,000 boxes of pencils and 80,000 boxes of pens were produced during the period. (Do not round intermediate calculations.)

Answer 1