Arrojo Corporation manufactures two products: Product X71B and Product C91I. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X71B and C91I. Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?
A) $416,500
B) $499,800
C) $333,200
D) $372,000

Question

Arrojo Corporation manufactures two products: Product X71B and Product C91I. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X71B and C91I.  Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product X71B?
A) $416,500 
B) $499,800 
C) $333,200 
D) $372,000

Quizplus · Accepted Answer

Using the plantwide overhead rate, the total overhead cost is divided by the total direct labor-hours: 
($1,249,400 ÷ 25,000 DLHs = $49.98/DLH) 
Product X71B: 
Direct labor-hours = 8,336 DLHs 
Manufacturing overhead allocated = ($49.98/DLH × 8,336 DLHs = $416,500) 
Product C91I: 
Direct labor-hours = 16,664 DLHs 
Manufacturing overhead allocated = ($49.98/DLH × 16,664 DLHs = $833,300) 
Total overhead allocated = ($416,500 + $833,300 = $1,249,800)

Arrojo Corporation Manufactures Two Products: Product X71B and Product C91I