Video Corporation Video Corporation has two product lines: LCD televisions and projection televisions. The company has budgeted the following production and overhead costs for the upcoming year:
Refer to Video Corporation. If the company uses an activity-based costing (ABC) system to allocate factory overhead, the materials handing cost allocated to projection TVs would be:
A) $35,000
B) $45,000
C) $46,875
D) $51,923

Question

Video Corporation Video Corporation has two product lines: LCD televisions and projection televisions. The company has budgeted the following production and overhead costs for the upcoming year:
 Refer to Video Corporation. If the company uses an activity-based costing (ABC) system to allocate factory overhead, the materials handing cost allocated to projection TVs would be:
A) $35,000 
B) $45,000 
C) $46,875 
D) $51,923

Quizplus · Accepted Answer

To allocate the materials handling cost under the ABC system, we need to identify the cost driver for this activity. Based on the information provided, the cost driver for materials handling is the number of production runs. 
LCD televisions require 80 production runs (40 setups x 2 runs per setup) while projection televisions require 125 production runs (25 setups x 5 runs per setup). 
Total materials handling cost = $187,500 
Materials handling cost per production run = $187,500 / (80 + 125) = $937.5 
Materials handling cost allocated to projection TVs = $937.5 x 50 setups x 5 runs per setup = $46,875. 
Therefore, the correct choice is C.

Video Corporation Video Corporation Has Two Product Lines: LCD Televisions