Clemson Co.incurs $700,000 of overhead costs each year in its three main departments, machining ($400,000), inspections ($200,000) and packing ($100,000).The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year.Information about Clemson's two products is as follows: $$\begin{array} { l c c }
& \text { Product X } & \text { Product } Y \
\text { Machining hours } & 1,000 & 3,000 \
\text { Inspections } & 100 & 500 \
\text { Orders packed } & 350 & 650 \
\text { Direct labor hours } & 1,700 & 1,800
\end{array}$$
-Using ABC, how much overhead is assigned to Product X this year?

Question

Clemson Co.incurs $700,000 of overhead costs each year in its three main departments, machining ($400,000), inspections ($200,000) and packing ($100,000).The machining department works 4,000 hours per year, there are 600 inspections per year, and the packing department packs 1,000 orders per year.Information about Clemson's two products is as follows: $$\begin{array} { l c c } 
& \text { Product X } & \text { Product } Y \
\text { Machining hours } & 1,000 & 3,000 \
\text { Inspections } & 100 & 500 \
\text { Orders packed } & 350 & 650 \
\text { Direct labor hours } & 1,700 & 1,800
\end{array}$$
-Using ABC, how much overhead is assigned to Product X this year?

Quizplus · Accepted Answer

To calculate the overhead assigned to Product X using Activity-Based Costing (ABC), we allocate costs based on the activities:  - Machining: $400,000 / 4,000 hours = $100 per hour. Product X uses 1,000 hours, so $100,000.  - Inspections: $200,000 / 600 inspections = $333.33 per inspection. Product X has 100 inspections, so $33,333.  - Packing: $100,000 / 1,000 orders = $100 per order. Product X packs 350 orders, so $35,000.  Total overhead for Product X = $100,000 + $33,333 + $35,000 = $168,333.

Clemson Co -Using ABC, How Much Overhead Is Assigned to Product X