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 these answers is correct.

Question

Quizplus · Accepted Answer

To allocate the indirect manufacturing costs, the company uses labor hours as the basis. Since a standard camping tent requires 4 hours of labor and a deluxe camping tent requires 10 hours of labor, the overhead cost should be assigned proportionally to each type of tent based on the number of labor hours required to make each tent. Therefore, for each standard camping tent, $16 of overhead cost should be assigned (4 hours x $4 per hour), and for each deluxe camping tent, $40 of overhead cost should be assigned (10 hours x $4 per hour). This allocation method accurately reflects the differing levels of labor required to make each type of tent.

Great Outdoors Company Makes Two Types of Camping Tents