Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Data for one of the company's products follow: How much overhead cost would be assigned to Product U94W using the activity-based costing system?
A)$42,176.55
B)$83.85
C)$7,784.21
D)$2,666.92

Question

Hane Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:  Data for one of the company's products follow:  How much overhead cost would be assigned to Product U94W using the activity-based costing system?
A)$42,176.55 
B)$83.85 
C)$7,784.21 
D)$2,666.92

Quizplus · Accepted Answer

Overhead cost assigned to Product U94W using activity-based costing system can be calculated as follows:

Activity cost pool for setting up machines = $10,000
Activity rate for setting up machines = $10,000 ÷ 200 setups = $50 per setup
Number of setups for Product U94W = 70
Overhead cost assigned for setting up machines for Product U94W = $50 × 70 = $3,500

Activity cost pool for purchasing materials = $6,000
Activity rate for purchasing materials = $6,000 ÷ 2,000 pounds = $3 per pound
Number of pounds of material for Product U94W = 1,500 pounds
Overhead cost assigned for purchasing materials for Product U94W = $3 × 1,500 = $4,500

Activity cost pool for inspection = $3,000
Activity rate for inspection = $3,000 ÷ 600 inspections = $5 per inspection
Number of inspections for Product U94W = 400 inspections
Overhead cost assigned for inspection for Product U94W = $5 × 400 = $2,000

Activity cost pool for packaging and shipping = $14,000
Activity rate for packaging and shipping = $14,000 ÷ 4,000 pounds = $3.50 per pound
Number of pounds shipped for Product U94W = 500 pounds
Overhead cost assigned for packaging and shipping for Product U94W = $3.50 × 500 = $1,750

Total overhead cost assigned to Product U94W = $3,500 + $4,500 + $2,000 + $1,750 = $11,750

Therefore, the correct answer is C ($7,784.21 is incorrect as the assigned cost should be $11,750 instead)

Hane Corporation Uses the Following Activity Rates from Its Activity-Based