Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

-If activity-based costing is used, then the total amount of overhead allocated to the standard model would be
A) $74,330.
B) $120,000.
C) $40,000.
D) $45,670.

Question

Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:
 
-If activity-based costing is used, then the total amount of overhead allocated to the standard model would be
A) $74,330. 
B) $120,000. 
C) $40,000. 
D) $45,670.

Quizplus · Accepted Answer

To find the overhead cost per unit for each model using activity-based costing, we need to calculate the overhead allocation rate for each of the three cost drivers as follows:

Activity 1: Material handling
Overhead cost driver rate = Total overhead cost for handling materials/Total number of materials used
= $120,000 / 150,000 pounds
= $0.80/pound

Activity 2: Machine setup
Overhead cost driver rate = Total overhead cost for machine setup/Total number of machine setups
= $50,000 / 500 setups
= $100/setup

Activity 3: Quality control
Overhead cost driver rate = Total overhead cost for quality control/Total number of units inspected
= $60,000 / 30,000 units
= $2/unit

Using the overhead cost driver rates, we can allocate overhead costs to each model as follows:

Standard model:
Material handling cost = $0.80/pound × 10,000 pounds = $8,000
Machine setup cost = $100/setup × 20 setups = $2,000
Quality control cost = $2/unit × 8,000 units = $16,000
Total overhead cost = $8,000 + $2,000 + $16,000 = $26,000

Deluxe model:
Material handling cost = $0.80/pound × 20,000 pounds = $16,000
Machine setup cost = $100/setup × 10 setups = $1,000
Quality control cost = $2/unit × 12,000 units = $24,000
Total overhead cost = $16,000 + $1,000 + $24,000 = $41,000

Therefore, the total amount of overhead allocated to the standard model would be $26,000.
The answer is D.