Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

Activity Cost Driver Amount M XY

Production setups Number of setups $ 72,000 12 28

Material handling Number of parts 50,000 54 36

Packaging costs Number of units 355,000 108,000 72,000

$ 477,000

What is the total overhead allocated to Product XY using the current system?

A) $212,400.

B) $190,800.

C) $264,600.

D) $286,200.

Question

Todd Molina

Business

23 September, 16:13

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:

Activity Cost Driver Amount M XY

Production setups Number of setups $ 72,000 12 28

Material handling Number of parts 50,000 54 36

Packaging costs Number of units 355,000 108,000 72,000

$ 477,000

What is the total overhead allocated to Product XY using the current system?

A) $212,400.

B) $190,800.

C) $264,600.

D) $286,200.

+2

Answers (1)

Know the Answer?

Harmony Watts · Answer 1

Option (B) is correct.

Explanation:

Number of units produced in total = M + XY

= 108,000 + 72,000

= 180,000

Total Overhead Cost = $72,000 + $50,000 + $355,000

= $477,000

The total overhead allocated to Product XY using the current system:

= (Total Overhead Cost : number of units produced in total) * Number of Units of Product XY

= ($477,000 : 180,000) * 72,000

= $190,800