Geneva, Inc., makes two products, X and Y, that require allocation of indirect m

Question

Geneva, Inc., makes two products, X and Y, that require allocation of indirect manufacturing costs. The following data were compiled by the accountants before making any allocations:

The total cost of purchasing and receiving parts used in manufacturing is $60,000. The company uses a job-costing system with a single indirect cost rate. Under this system, allocated costs were $48,000 and $12,000 for X and Y, respectively. If an activity-based system is used, what would be the allocated costs for each product?

a.

b.

c.

d.

Product X Product Y Quantity produced 10,000 20,000 Direct manufacturing labor hours 40,000 10,000 Number of purchase orders 500 2,000

Explanation / Answer

Answer is option C

Purchase order allocation

Product X = 500/(2000+500) = 20%

Product Y = 2000/(2000+500) = 80%

Cost Allocation

Product X = 20% *60000 = 12000

Product Y = 80% * 60000 = 48000

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