Johnson Manufacturing Johnson Manufacturing anticipates incurring $850,000 in overhead costs this year. After implementing activity-based costing (ABC), the company's controller identified the following related information:
The number of activities expected is as follows:
Refer to the Johnson Manufacturing information above. How much total overhead will be allocated to the production activity?

Question

Johnson Manufacturing Johnson Manufacturing anticipates incurring $850,000 in overhead costs this year. After implementing activity-based costing (ABC), the company's controller identified the following related information:
 The number of activities expected is as follows:
 Refer to the Johnson Manufacturing information above. How much total overhead will be allocated to the production activity?

Quizplus · Accepted Answer

Based on the information provided, we can determine the proportion of overhead costs allocated to each activity by dividing the total expected overhead costs by the expected quantity of each activity.

The proportion of overhead allocated to the production activity is:

$500,000 / 10,000 = $50 per unit

The number of units expected for production activity is:

20,000 + 5,000 = 25,000 units

Therefore, the total overhead allocated to the production activity is:

$50 per unit x 25,000 units = $1,250,000

However, we need to remember that the total overhead costs incurred by Johnson Manufacturing is $850,000. Therefore, we need to adjust the allocation by subtracting the total overhead costs incurred from the total overhead allocated to all activities.

Total overhead allocated to all activities is:

$30,000 + $127,500 + $1,250,000 = $1,407,500

Adjustment for the total overhead costs incurred:

$1,407,500 - $850,000 = $557,500

Therefore, the total overhead allocated to the production activity is:

($1,250,000 / $1,407,500) x $557,500 = $492,500

So, the correct answer is B, $492,500.

Johnson Manufacturing Johnson Manufacturing Anticipates Incurring $850,000 in Overhead Costs