Sheddon Industries produces two products. The products' identified costs are as follows: The company's overhead costs of $108,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)
A) $36,000
B) $111,000
C) $68,000
D) None of the answers are correct.

Question

Sheddon Industries produces two products. The products' identified costs are as follows:  The company's overhead costs of $108,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)
A) $36,000 
B) $111,000 
C) $68,000 
D) None of the answers are correct.

Quizplus · Accepted Answer

Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base)
Allocation rate = $108,000 ÷ ($12,000 + $24,000) = $3 per direct labor dollar
Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object
Allocation of overhead cost to Product A = $3 per direct labor dollar × $12,000 = $36,000
Direct material cost of $20,000 + Direct labor cost of $12,000 + Overhead cost of $36,000 = $68,000

Sheddon Industries Produces Two Products