Ayala Inc.computed an overhead rate for machining costs $1,500,000 of $15 per machine hour.Machining costs are driven by machine hours.If computed based on direct labor hours,the overhead rate for machining costs would be $30 per direct labor hour.The company produces two products,Hammer and Tong.Hammer requires 60,000 machine hours and 20,000 direct labor hours,while Tong requires 40,000 machine hours and 30,000 direct labor hours.Using activity-based costing,machining costs assigned to each product is Hammer Tong
A)$600,000 $900,000
B)$750,000 $750,000
C)$800,000 $700,000
D)$900,000 $600,000

Question

Quizplus · Accepted Answer

To allocate machining costs using activity-based costing, we need to use the overhead rate for machining costs based on machine hours as Hammer and Tong's costs are driven by machine hours. Then, we can allocate costs to each product by multiplying the number of machine hours required for each product by the overhead rate per machine hour.

For Hammer:
Machining costs = 60,000 machine hours x $15 per machine hour = $900,000

For Tong:
Machining costs = 40,000 machine hours x $15 per machine hour = $600,000

Therefore, using activity-based costing, the machining costs assigned to Hammer and Tong are $900,000 and $600,000, respectively, leading to the answer of choice C.

Ayala IncComputed an Overhead Rate for Machining Costs $1,500,000 of $15