Auburn,Inc.'s overhead costs of $700,000 consist of machining $400,000; inspecting $200,000; and packaging $100,000.Machining works 4,000 hours a year,500 inspections occur each year,and 1,000 packing order occur each year.Information on the company's two products are as follows: Alpha Omega
Machining hours 1,000 3,000
Inspections 100 400
Packing orders 350 650
Direct labor hours 1,700 1,800
Determine how much overhead is allocated to Alpha assuming the use of a single overhead rate based on direct labor hours and assuming the use of ABC,respectively.
A)$340,000 and $360,000
B)$340,000 and $175,000
C)$360,000 and $175,000
D)$360,000 and $525,000

Question

Quizplus · Accepted Answer

Using a single overhead rate based on direct labor hours, the total overhead is $700,000 and total direct labor hours are 3,500 (1,700 for Alpha and 1,800 for Omega). The overhead rate is $700,000 / 3,500 = $200 per direct labor hour. For Alpha, the overhead is 1,700 hours * $200 = $340,000. Using ABC, allocate overhead based on activities: Machining ($400,000/4,000 hours), Inspecting ($200,000/500 inspections), and Packaging ($100,000/1,000 orders). For Alpha: Machining (1,000*$100) + Inspecting (100*$400) + Packaging (350*$100) = $100,000 + $40,000 + $35,000 = $175,000.