Great Outdoors Company makes two types of camping tents.Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor.During the most recent accounting period the company made 2,000 standard camping tents and 500 deluxe camping tents.Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours.Based on this information:
A) $4 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
B) $20.80 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
C) $16 of overhead cost should be assigned to each standard camping tent and $40 of overhead cost should be assigned to each deluxe tent.
D) None of the answers are correct.

Question

Quizplus · Accepted Answer

The overhead costs are allocated based on labor hours. Since a standard tent requires 4 hours of labor and a deluxe tent requires 10 hours of labor, the total overhead costs of $52,000 should be allocated based on the proportion of labor hours used for each type of tent.

For standard tents: 
$52,000 x 2,000 standard tents / (2,000 standard tents x 4 labor hours per tent) = $16 of overhead cost per standard tent

For deluxe tents: 
$52,000 x 500 deluxe tents / (500 deluxe tents x 10 labor hours per tent) = $40 of overhead cost per deluxe tent

Therefore, the answer is C: $16 of overhead cost should be assigned to each standard camping tent and $40 of overhead cost should be assigned to each deluxe tent.

Great Outdoors Company Makes Two Types of Camping Tents