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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

Use the following information to answer questions 
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

Quizplus · Accepted Answer

Overhead assigned to Downy product = (Material handling costs assigned to Downy + Purchasing costs assigned to Downy + Direct labour costs assigned to Downy)= ($300,000 x 700/1000) + ($204,000 x 114/204) + ($504,000 x 2,800/6,300)= $210,000 + $114,000 + $220,000= $544,000

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