Metal Works Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
The expected activity for the year for various cost drivers is:
The company is considering accepting a significant production contract. Estimates for the contract are as follows:
NOTE: Round all per-unit costs to nearest cent.
How much overhead should be allocated to the contract based on Activity-Based Costing?
A) $2,380
B) $4,800
C) $5,300
D) $8,200
E) None of the above

Question

Metal Works Corporation has a significant level of manufacturing overhead. After preparing their budget for the next year, management expects the following overhead costs (the cost driver for each overhead cost pool is also shown):
 The expected activity for the year for various cost drivers is:
 The company is considering accepting a significant production contract. Estimates for the contract are as follows:
 NOTE: Round all per-unit costs to nearest cent.
How much overhead should be allocated to the contract based on Activity-Based Costing?
A) $2,380 
B) $4,800 
C) $5,300 
D) $8,200 
E) None of the above

Quizplus · Accepted Answer

Amount of overhead allocation using ABC costing:
Rates:
Maintenance: $25,000 / 12,500 = $2/MH
Materials receiving: $60,000 / 5,000 = $12/shipment
Setups: $10,000 / 100 = $100/setup
Inspection: $24,000 / 8,000 = $3/inspection
Overhead assigned:
$2/MH × 1,500 MH $3,000
$12 per shipment × 250 shipments 3,000
$100 per setup × 10 setups 1,000
$3 per inspection × 400 inspections 1,200
$8,200

Metal Works Corporation Has a Significant Level of Manufacturing Overhead