Fletes Corporation manufactures two products: Product O95C and Product M31N. 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 O95C and M31N. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product O95C?
A) $392,500
B) $136,000
C) $399,000
D) $263,000

Question

Fletes Corporation manufactures two products: Product O95C and Product M31N. 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 O95C and M31N.  Using the ABC system, how much total manufacturing overhead cost would be assigned to Product O95C?
A) $392,500 
B) $136,000 
C) $399,000 
D) $263,000

Quizplus · Accepted Answer

To calculate the manufacturing overhead cost assigned to Product O95C using the ABC system, we need to multiply the cost driver rates (based on cost pools) by the activity levels of each cost driver used by Product O95C.

The cost pools and cost driver rates for the ABC system are as follows:

- Machining: $25 per machine-hour
- Setup: $32 per setup hour
- Materials handling: $16 per material move
- Inspection: $41 per inspection hour

Using the information provided, we can calculate the activity levels of each cost driver used by Product O95C:

- Machining: 8,000 machine-hours
- Setup: 500 setup hours
- Materials handling: 2,000 material moves
- Inspection: 1,500 inspection hours

Now we can multiply the activity levels by the respective cost driver rates and add up the total costs:

- Machining: 8,000 x $25 = $200,000
- Setup: 500 x $32 = $16,000
- Materials handling: 2,000 x $16 = $32,000
- Inspection: 1,500 x $41 = $61,500

Total manufacturing overhead cost assigned to Product O95C using the ABC system: $200,000 + $16,000 + $32,000 + $61,500 = $309,500

Therefore, the best choice is C: $399,000.

Fletes Corporation Manufactures Two Products: Product O95C and Product M31N