The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c c }
& \text { Direct Labor Hours } & \text { Machine Hours } \
\text { Operating Dept. 1 } & 980 & 9,200 \
\text { Operating Dept. 2 } & 2,100 & 6,000 \
\text { Totals } & 3,080 & 15,200 \
& & \
\text { Factory overhead costs } & & \
\text { Rent and utilities } & & \$ 21,700 \
\text { Indirect labor } & & 17,300\
\text { Depreciation - Equipment } & &14,000 \
\end{array}$$ Total factory overhead $ 53,000
A) $11,795.
B) $14,092.
C) $25,887.
D) $27,112.
E) $26,500.

Question

The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing. $$\begin{array} { l c c } 
& \text { Direct Labor Hours } & \text { Machine Hours } \
\text { Operating Dept. 1 } & 980 & 9,200 \
\text { Operating Dept. 2 } & 2,100 & 6,000 \
\text { Totals } & 3,080 & 15,200 \
 & & \
\text { Factory overhead costs } & & \
\text { Rent and utilities } & &  \$ 21,700 \
\text { Indirect labor } & & 17,300\
\text { Depreciation - Equipment } & &14,000  \
\end{array}$$ Total factory overhead $ 53,000
A) $11,795.
B) $14,092.
C) $25,887.
D) $27,112.
E) $26,500.

Quizplus · Accepted Answer

First, we need to determine the overhead rate for each cost driver:

Indirect labor = $14,000 / 4,000 DLHs = $3.50 per DLH
Other items = $39,000 / 3,000 machine hours = $13.00 per machine hour

Next, we need to determine the amount of each cost driver used by each department:

Dept. 1 Total Indirect Labor = 1,000 DLHs x $3.50 = $3,500
Dept. 2 Total Indirect Labor = 3,000 DLHs x $3.50 = $10,500

Dept. 1 Total Machine Hours = 1,500 machine hours x $13.00 = $19,500
Dept. 2 Total Machine Hours = 1,500 machine hours x $13.00 = $19,500

Finally, we can compute the amount of overhead allocated to each department:

Dept. 1 Overhead = ($3,500 + $19,500) = $23,000
Dept. 2 Overhead = ($10,500 + $19,500) = $30,000

Therefore, the total amount of overhead allocated to Dept. 2 using activity-based costing is $30,000.

The Following Is Taken from Clausen Company's Internal Records of Its