Sleep-Tight manufactures mattresses for the hotel industry.It has two products, Downy and Firm and total overhead of $504,000.The company plans to manufacture 200 Downy mattresses and 300 Firm mattresses this year.In manufacturing the mattresses, the company must perform 700 material moves for the Downy and 300 for the Firm; it processes 114 purchase orders for the Downy and 90 for the Firm; and the company's employees work 2,800 direct labour hours on the Downy product and 3,500 on the Firm.Sleep-Tight's total material handling costs are $300,000 and its total purchasing costs are $204,000. Using ABC, how much overhead would be assigned to the Downy product?
A)$504,000
B)$324,000
C)$252,000
D)$180,000

Question

Quizplus · Accepted Answer

To calculate the overhead assigned to the Downy product using Activity-Based Costing (ABC), we first need to allocate the total overhead costs ($504,000) into material handling and purchasing costs based on the information provided. The total material handling costs are $300,000, and the total purchasing costs are $204,000. 1. Material Handling Costs Allocation:- Total material moves: 700 (Downy) + 300 (Firm) = 1000 moves- Material handling cost per move: $300,000 / 1000 = $300/move- Material handling costs for Downy: 700 moves * $300/move = $210,0002. Purchasing Costs Allocation:- Total purchase orders: 114 (Downy) + 90 (Firm) = 204 orders- Purchasing cost per order: $204,000 / 204 = $1,000/order- Purchasing costs for Downy: 114 orders * $1,000/order = $114,000Adding both costs for Downy gives us: $210,000 (material handling) + $114,000 (purchasing) = $324,000.

Sleep-Tight Manufactures Mattresses for the Hotel Industry