Heedy Winery accumulates the costs incurred in the labeling process in an activity cost pool.Costs for the labeling process are estimated to be $320,000, and the winery expects to generate 640,000 labels for the coming year.Production for its top-selling wine is estimated at 160,000 bottles.How much overhead from the labeling process will be allocated to this particular variety of wine?

Question

Quizplus · Accepted Answer

The overhead allocated to the top-selling wine is based on the number of labels used for this particular variety of wine. If we divide the total number of labels (640,000) by the number of bottles produced for the top-selling wine (160,000), we get 4. This means that for every bottle of this wine produced, 4 labels are used. Therefore, the overhead allocated to this wine is $80,000 (320,000/4).

Heedy Winery Accumulates the Costs Incurred in the Labeling Process