Ben Corporation manufactures two products: Product E05G and Product L64Y. The co

Question

Ben Corporation manufactures two products: Product E05G and Product L64Y. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products E05G and L64Y.

Using the plantwide overhead rate, the percentage of the total overhead cost that is allocated to Product E05G is closest to:

Activity Cost Pool Activity Measure Total Cost Total Activity Machining Machine-hours $ 285,000 15,000 MHs Machine setups Number of setups $ 180,000 300 setups Product design Number of products $ 64,000 2 products Order size Direct labor-hours $ 350,000 10,000 DLHs

Explanation / Answer

Expected Overhead = Machining Cost + Machine Setups Cost + Product Design Cost + Order Size Cost
Expected Overhead = $285,000 + $180,000 + $64,000 + $350,000
Expected Overhead = $879,000

Expected direct labor hours = 10,000

Predetermined Overhead Rate = Expected Overhead / Expected direct labor hours
Predetermined Overhead Rate = $879,000 / 10,000
Predetermined Overhead Rate = $87.90

Product E05G:

Overhead applied = Predetermined Overhead Rate * Estimated direct labor hours
Overhead applied = $87.90 * 3,000
Overhead applied = $263,700

Percentage of Total Overhead = $263,700 / $879,000
Percentage of Total Overhead = 30%

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