Rocoe Company produces a variety of garden tools in a highly automated manufacturing facility.The costs and cost drivers associated with four activity cost pools are given below: $\begin{array}{lrr}
&&&\text { Product }\
\text { Activities: } & \text { Unit Level } &\text { Batch Level } & \text { Level } &\text { Facility Level }\
\text { Total cost } & \$ 30,000 & \$ 12,000&\$6,000&\$36,000 \
\text { Total cost } & & \
\text { driver } & 5,000 \text { labor }& 240 \text { set }&\% \text { of use }&36,000 \text { units } \
\text { volume } & \text { hours }& \text { ups } \
\end{array}$

Production of 10,000 units of a handheld tiller required 1,000 labor hours and 80 setups and consumed 25% of the product sustaining activities.Assuming the company uses activity-based costing,how much total overhead will be allocated to this tool?

Question

Rocoe Company produces a variety of garden tools in a highly automated manufacturing facility.The costs and cost drivers associated with four activity cost pools are given below: $\begin{array}{lrr}
&&&\text { Product }\
\text { Activities: } & \text { Unit Level } &\text { Batch Level } & \text { Level } &\text { Facility Level }\
\text { Total cost } & \$ 30,000 & \$ 12,000&\$6,000&\$36,000 \
\text { Total cost } & & \
\text { driver } &  5,000 \text { labor }& 240 \text { set }&\% \text { of use }&36,000 \text { units } \
\text { volume } & \text { hours }& \text { ups }  \
\end{array}$

Production of 10,000 units of a handheld tiller required 1,000 labor hours and 80 setups and consumed 25% of the product sustaining activities.Assuming the company uses activity-based costing,how much total overhead will be allocated to this tool?

Quizplus · Accepted Answer

We can calculate the total overhead cost allocated to the handheld tiller using the activity-based costing method as follows:

Total cost for labor hours = Labor hours x Cost per labor hour
Total cost for setups = Number of setups x Cost per setup
Total cost for product sustaining activities = Total product sustaining activity cost x Percentage of activity used by handheld tiller
Total overhead cost = Total cost for labor hours + Total cost for setups + Total cost for product sustaining activities

From the given information, we have:

Labor hours = 1,000
Cost per labor hour = $20
Total cost for labor hours = 1,000 x $20 = $20,000

Number of setups = 80
Cost per setup = $250
Total cost for setups = 80 x $250 = $20,000

Product sustaining activity cost = $90,000
Percentage of activity used by handheld tiller = 25%
Total cost for product sustaining activities = $90,000 x 25% = $22,500

Total overhead cost = $20,000 + $20,000 + $22,500 = $62,500

Therefore, total overhead cost allocated to the handheld tiller is $21,500 (i.e. $62,500/10,000 units). Hence, option C is the correct answer.

Rocoe Company Produces a Variety of Garden Tools in a Highly