Performance Bicycle Company makes steel and titanium handlebars for bicycles.It requires approximately one hour of labor to make one handlebar of either type.During the most recent accounting period,Barr Company made 7,000 steel bars and 3,000 titanium bars.Setup costs amounted to $84,000.One batch of each type of bar was run each month.If a single companywide overhead rate based on direct labor hours is used to allocate overhead costs to the two products,the amount of setup cost assigned to the steel bars will be:
A) $8,400.
B) $84,000.
C) $49,000.
D) $58,800.

Question

Quizplus · Accepted Answer

Using a single companywide overhead rate based on direct labor hours to allocate overhead costs, the total direct labor hours for both steel and titanium bars (7,000 steel bars + 3,000 titanium bars = 10,000 bars) are considered. The setup cost of $84,000 is allocated based on these hours. Since steel bars represent 70% of the total production (7,000 out of 10,000 bars), 70% of the setup cost is assigned to steel bars: 70% of $84,000 = $58,800.

Performance Bicycle Company Makes Steel and Titanium Handlebars for Bicycles