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16 July, 04:29

Leather Company makes two types of women's handbags. Making a standard handbag requires 2 hours of labor while making a deluxe handbag requires 5 hours of labor. During the next year, the company expects to make 2,000 standard handbags and 500 deluxe handbags. Indirect manufacturing costs are expected to be $52,000. Based on this information:

A. $8 of overhead cost should be allocated to each handbag of both types.

B. $20.80 of overhead cost should be allocated to each handbag of both types.

C. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag.

D. None of these

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  1. 16 July, 04:39
    0
    C. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag.

    Explanation:

    Given that

    Total indirect manufacturing expected = $52000

    And,

    Total hours required to manufacture handbags is

    = (2,000 standard handbags * 2 hours) + (500 deluxe handbags * 5 hours)

    = 4,000 + 2,500

    = 6,500

    So,

    Indirect cost per hour is

    = $52000 : 6500

    = $8 per hour

    Now

    Cost allocated to standard handbags is

    = $8 * 2

    = $16

    And, for deluxe handbag it is

    = $8 * 5

    = $40
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