Electronic Company uses an activity-based costing overhead allocation system. It

Question

Electronic Company uses an activity-based costing overhead allocation system. It has identified three activities and three cost drivers. The activities and budgeted costs are as follows:

                                      Activity                                                 Budgeted Cost

                               Material Handling                                          $115,000

                               Purchasing                                                        58,000

                               Packaging                                                          56,000

The following cost driver information is available for the company's only two products, A and B:

                                           Product A                             Product B

pounds of material              27,100                               64,700

purchase orders                  48,900                               43,100

packages                               65,300                                49,100

How much overhead was allocated to Product B? (round overhead rates to the nearest cent.)

Explanation / Answer

material costs allocated to b = 115000 * 64700 / ( 64700 + 27100 ) = 81051.198

purchasing cost = 58000 * 43100 / ( 43100 + 48900 ) = 27171.739

Packaging cost = 56000 * 49100 / ( 65300 + 49100 ) = 24034.965

Total overhead to B = 81051.198 + 27171.739 + 24034.965 = $132,257.90

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