Everlast Co. manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:Using ABC, how much other overhead is assigned to the order?
A)$8,000.
B)$9,960.
C)$11,108.
D)$19,200.
E)$45,992.

Question

Everlast Co. manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:Using ABC, how much other overhead is assigned to the order?
A)$8,000. 
B)$9,960. 
C)$11,108. 
D)$19,200. 
E)$45,992.

Quizplus · Accepted Answer

To calculate the amount of overhead using ABC, we need to first allocate the indirect costs to the cost pools based on the cost drivers. 
Using the given cost driver information, we can allocate the indirect costs as follows:
Machine setups: $80,000 × (200 ÷ 1,000) = $16,000
Material handling: $120,000 × (600 ÷ 1,000) = $72,000
Quality control: $40,000 × (3,200 ÷ 1,000) = $128,000
Total indirect costs allocated = $16,000 + $72,000 + $128,000 = $216,000
Now, we can calculate the overhead rate by dividing the total indirect costs by the total cost driver activity:
Overhead rate = $216,000 ÷ 4,800 direct labor-hours = $45 per direct labor-hour
Finally, we can assign the other overhead cost to the order by multiplying the overhead rate by the actual direct labor-hours:
Other overhead = $45 per direct labor-hour × 220 direct labor-hours = $9,900 ≈ $9,960
Therefore, the answer is B) $9,960.