Volcker, Inc.manufactures recliners for the hotel industry.It has two products, the Heater and the Massager, and total overhead is $1,580,000.The company plans to manufacture 400 Heaters and 100 Massagers this year.In manufacturing the recliners, the company must perform 600 material moves for the Heater and 400 for the Massager; it processes 900 purchase orders for the Heater and 700 for the Massager; and the company's employees work 1,400 direct labor hours on the Heater product and 3,400 on the Massager.Volcker's total material handling costs are $1,000,000 and its total processing costs are $580,000.Using ABC, how much overhead would be assigned to the Heater product?

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Quizplus · Accepted Answer

The overhead assigned to the Heater is calculated by allocating material handling and processing costs based on activity usage. Material handling cost per move is $1,000,000 / (600 + 400) = $1,000. Processing cost per order is $580,000 / (900 + 700) = $362.50. Heater's overhead = (600 moves * $1,000) + (900 orders * $362.50) = $600,000 + $326,250 = $926,250.