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Given the following information, assign overhead costs to Product B using ABC.  ActivityCostsCost DriverAssembling costs$200,000Machine-hoursSetup costs$75,000Number of setupsInspecting costs$50,000Direct labor-hours   ActivityProduct A UseProduct B UseAssembling costs500 machine-hours300 machine-hoursSetup costs10 setups15 setupsInspecting costs25 direct labor-hours15 direct labor-hoursMultiple choice question.$138,750$125,250$150,750

Question

Given the following information, assign overhead costs to Product B using ABC.  ActivityCostsCost DriverAssembling costs200,000Machine−hoursSetupcosts200,000Machine-hoursSetup costs75,000Number of setupsInspecting costs50,000Directlabor−hours   ActivityProductAUseProductBUseAssemblingcosts500machine−hours300machine−hoursSetupcosts10setups15setupsInspectingcosts25directlabor−hours15directlabor−hoursMultiplechoicequestion.50,000Direct labor-hours   ActivityProduct A UseProduct B UseAssembling costs500 machine-hours300 machine-hoursSetup costs10 setups15 setupsInspecting costs25 direct labor-hours15 direct labor-hoursMultiple choice question.138,750125,250125,250150,750

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Solution

To assign overhead costs to Product B using Activity-Based Costing (ABC), we first need to determine the cost per unit of each activity (cost driver). Then, we multiply the cost per unit by the number of units used by Product B.

  1. Assembling costs: The total cost is 200,000andthecostdriverismachine−hours.So,thecostpermachine−houris200,000 and the cost driver is machine-hours. So, the cost per machine-hour is 200,000 / (500 machine-hours for Product A + 300 machine-hours for Product B) = 200,000/800machine−hours=200,000 / 800 machine-hours = 250 per machine-hour. For Product B, the assembling costs are 300 machine-hours * 250permachine−hour=250 per machine-hour = 75,000.

  2. Setup costs: The total cost is 75,000andthecostdriveristhenumberofsetups.So,thecostpersetupis75,000 and the cost driver is the number of setups. So, the cost per setup is 75,000 / (10 setups for Product A + 15 setups for Product B) = 75,000/25setups=75,000 / 25 setups = 3,000 per setup. For Product B, the setup costs are 15 setups * 3,000persetup=3,000 per setup = 45,000.

  3. Inspecting costs: The total cost is 50,000andthecostdriverisdirectlabor−hours.So,thecostperdirectlabor−houris50,000 and the cost driver is direct labor-hours. So, the cost per direct labor-hour is 50,000 / (25 direct labor-hours for Product A + 15 direct labor-hours for Product B) = 50,000/40directlabor−hours=50,000 / 40 direct labor-hours = 1,250 per direct labor-hour. For Product B, the inspecting costs are 15 direct labor-hours * 1,250perdirectlabor−hour=1,250 per direct labor-hour = 18,750.

Adding up these costs, the total overhead costs assigned to Product B using ABC are 75,000(assembling)+75,000 (assembling) + 45,000 (setup) + 18,750(inspecting)=18,750 (inspecting) = 138,750. So, the correct answer is $138,750.

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