Volcker, Inc. manufactures recliners for the hotel industry. It has two products

Question

Volcker, Inc. manufactures recliners for the hotel industry. It has two  products, the Heater and the Massager, and total overhead is $1,580,000. The  company plans to manufacture 400 Heaters and 100 Massagers this year. In  manufacturing the recliners, the company must perform 600 material moves for  the Heater and 400 for the Massager; it processes 900 purchase orders for the  Heater and 700 for the Massager; and the company's employees work 1,400 direct  labor hours on the Heater product and 3,400 on the Massager. Volcker's total  material handling costs are $1,000,000 and its total processing costs are  $580,000. Using ABC, how much overhead would be assigned to the Heater product?

Explanation / Answer

Hi,

Please find the answer as follows:

Overhead Assigned to Heater Product:

Material Handling Cost Allocated to Heater = 1000000*400/(400 + 100) = 800000

+

Processing Cost Allocated to Heater = 580000*900/(900+700) = 326250

Total Overhead Assigned to Heater = 800000 + 326250 = 1126250

Answer is 1126250

Thanks.

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