Meli Corporation manufactures two products: Product L61P and Product B60E. 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 L61P and B60E. Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product B60E is closest to:
A) 31.37%
B) 30.00%
C) 10.34%
D) 50.00%

Question

Meli Corporation manufactures two products: Product L61P and Product B60E. 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 L61P and B60E.  Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product B60E is closest to:
A) 31.37% 
B) 30.00% 
C) 10.34% 
D) 50.00%

Quizplus · Accepted Answer

Using the plantwide overhead rate, the total overhead cost is calculated as follows:

Total overhead cost = Total direct labor-hours x Plantwide overhead rate 
= 20,000 DLHs x $8 per DLH 
= $160,000

The percentage of the total overhead cost that is allocated to Product B60E is:

Product B60E overhead cost = Total overhead cost x (B60E DLHs / Total DLHs) 
= $160,000 x (5,000 / 20,000) 
= $40,000

So, the percentage of the total overhead cost that is allocated to Product B60E is:

($40,000 / $160,000) x 100% 
= 25%

Therefore, the closest answer choice is B) 30.00%.

Meli Corporation Manufactures Two Products: Product L61P and Product B60E