Figure 4-11 Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers:
Refer to Figure 4-11. Using functional-based costing, what is the amount of overhead cost to be assigned to Product II using labor hours as the allocation base?

Question

Figure 4-11 Longview Manufacturing Company manufactures two products (I and II). The overhead costs ($58,000) have been divided into three cost pools that use the following activity drivers:
 Refer to Figure 4-11. Using functional-based costing, what is the amount of overhead cost to be assigned to Product II using labor hours as the allocation base?

Quizplus · Accepted Answer

To determine the amount of overhead cost to be assigned to Product II using labor hours as the allocation base, we need to use the following formula:

Overhead cost assigned to Product II = (Total overhead cost / Total labor hours) x Labor hours for Product II

Total labor hours = 1,500 + 2,500 = 4,000

Labor hours for Product II = 2,500

So, the overhead cost assigned to Product II = ($58,000 / 4,000) x 2,500 = $36,250

However, this is not the final answer because we need to allocate the overhead cost based on the activity drivers. From the information given, we know that Product II uses 50% of the setups, 70% of the inspection time, and 80% of the packaging. Therefore, the final overhead cost assigned to Product II using labor hours as the allocation base would be:

Overhead cost assigned to Product II = $36,250 x 0.7 (for inspection time) x 0.8 (for packaging) = $23,240

Therefore, the best choice is D.

Figure 4-11 Longview Manufacturing Company Manufactures Two Products (I and II)