Heedy Winery accumulates the costs incurred in the labeling process in an activity cost pool.Costs for the labeling process are estimated to be $320,000 for the coming year,and the winery expects to generate 640,000 labels.Production for its top-selling wine is estimated at 160,000 bottles.How much overhead from the labeling process will be allocated to this particular variety of wine?

Question

Quizplus · Accepted Answer

The overhead cost per unit for the labeling process is calculated by dividing the total cost by the total number of labels: $320,000 ÷ 640,000 labels = $0.50 per label. 
To allocate the overhead cost to the particular variety of wine, we need to know the number of labels used for this wine. Assuming that each bottle requires one label, the number of labels for the top-selling wine is 160,000. 
Therefore, the total overhead cost allocated to this variety of wine is: $0.50 per label x 160,000 labels = $80,000. 
Hence, the correct answer is option B.

Heedy Winery Accumulates the Costs Incurred in the Labeling Process