Compute the amount of overhead to be allocated to product

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Question

Isadore's Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data:

Cost Driver VolumeActivityCost DriverCostPencilsPensSetting upNumber of setups$94,000 1928InspectingNumber of parts 28,800 36Packing and shippingNumber of boxes shipped 72,000 40,00080,000Total overhead $194,800

Required:

a. Compute the amount of overhead to be allocated to each product under activity-based costing.

b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.1 for pencils and 0.2 for pens and that 40,000 boxes of pencils and 80,000 boxes of pens were produced during the period.

Reference no: EM132385775

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