St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array}{cccc}& \text { Pool No. 1 } & \text { Pool No. 2 } & \text { Pool No. 3 } \
\text { Product } & \text { (Driver: DLH) } & \text { (Driver: SU) } & \text { (Driver: PC) }\\hline
\text { Beta } & 1,200 & 45 & 2,250 \
\text { Zeta } & 2,800 & 55 & 750 \
& & & \
\text { Pool Cost } & \$ 160,000 & \$ 280,000 & \$ 360,000
\end{array}$ The overhead cost allocated to Zeta by using traditional costing procedures would be:
A) $240,000.
B) $356,000.
C) $444,000.
D) $560,000.
E) None of the other answers is correct.

Question

Quizplus · Accepted Answer

Under traditional costing, overhead is allocated based on direct labor hours. Zeta uses 2,800 out of a total of 4,000 direct labor hours (1,200 for Beta + 2,800 for Zeta). Therefore, the overhead allocated to Zeta is (2,800/4,000) * $800,000 = $560,000.

St James, Inc The Overhead Cost Allocated to Zeta by Using Traditional Costing