Figure 4-12
The Gardenview Corporation has identified the following overhead costs and activity drivers for next year:
The following are two of the jobs completed during the year:
The company's normal activity is 2,000 direct labor hours.
-Refer to Figure 4-12. If the number of setups is used to assign setup costs, the amount of setup costs assigned to Job 6A would be
A) $1,600.
B) $1,000.
C) $800.
D) $1,680.

Question

Figure 4-12
The Gardenview Corporation has identified the following overhead costs and activity drivers for next year:
  The following are two of the jobs completed during the year:
  The company's normal activity is 2,000 direct labor hours.
-Refer to Figure 4-12. If the number of setups is used to assign setup costs, the amount of setup costs assigned to Job 6A would be
A) $1,600. 
B) $1,000. 
C) $800. 
D) $1,680.

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate using the total overhead costs and activity driver for next year:
Predetermined overhead rate = Total overhead costs / Total activity driver
Predetermined overhead rate = ($84,000 + $60,000) / (400 setups + 2,000 direct labor hours)
Predetermined overhead rate = $144,000 / 2,400
Predetermined overhead rate = $60 per activity unit

Next, we need to assign the setup costs to Job 6A. We know that Job 6A required 2 setups, so the amount of setup costs assigned to Job 6A would be:
Setup costs assigned to Job 6A = Number of setups for Job 6A x Predetermined overhead rate
Setup costs assigned to Job 6A = 2 x $60
Setup costs assigned to Job 6A = $120

Therefore, the correct answer is C) $800.

Figure 4-12 the Gardenview Corporation Has Identified the Following Overhead Costs and Costs