Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: $\begin{array}{lccc}
&&\text { Number of Labor }\
\text { Product } & \text {Number of Orders } & \text { Transactions } &\text { Labor Hours }\
\hline I& 15 & 50 & 500 \
II & 10&150&2,000 \
\text { Cost per pool } & \$ 12,500 & \$ 8,000 & \$ 40,000
\end{array}$ Using functional-based costing, what is the amount of overhead cost to be assigned to Product II using labor hours as the allocation base?
A)$58,000
B)$43,500
C)$11,600
D)$46,400

Question

Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers: $\begin{array}{lccc} 
&&\text { Number of Labor }\
\text { Product  } & \text {Number of Orders } & \text { Transactions } &\text { Labor Hours }\
\hline I& 15 & 50 & 500 \
II & 10&150&2,000 \
\text { Cost per pool } & \$ 12,500 & \$ 8,000 & \$ 40,000
\end{array}$ Using functional-based costing, what is the amount of overhead cost to be assigned to Product II using labor hours as the allocation base?
A)$58,000
B)$43,500
C)$11,600
D)$46,400

Quizplus · Accepted Answer

The overhead cost assigned to Product II using labor hours as the allocation base is calculated as follows: Total labor hours = 500 (Product I) + 2000 (Product II) = 2500 hours. The proportion of labor hours for Product II = 2000 / 2500 = 0.8 (or 80%). The total overhead costs to be allocated based on labor hours = $40,000 (since this is the cost pool for labor hours). Therefore, the amount allocated to Product II = 0.8 * $40,000 = $32,000. However, the correct calculation involves the total overhead costs, not just the labor hours cost pool. The mistake in the explanation led to an incorrect conclusion. The correct approach should allocate the total overhead costs based on the proportion of labor hours for Product II.

Longview Manufacturing Company Manufactures Two Products (I and II) Using Functional-Based Costing, What Is the Amount of Overhead Cost