Immen Corporation manufactures two products: Product B82O and Product P99Y. The

Question

Immen Corporation manufactures two products: Product B82O and Product P99Y. 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 B82O and P99Y Activity Cost Pool Activity Measure Total Cost Total Activity Machining Machine setups Product desigrn General factory Machine-hours Number of setups Number of products 46,000 Direct labor-hours $330,000 10,000 DLHs $330,000 15,000 MHs $300,000 500 setups 2 products ProductProduct B820 P99Y 7,000 8,000 Activity Measure Machine-hours Number of setups Number of products Direct labor-hours 200 300 3,000 7,000 Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L? Using the ABC system, how much total manufacturing overhead cost would be assigned to Product B820?

Explanation / Answer

a) Plant wide overhead rate = 1006000/10000 = 100.6 per labour hour

Manufacturing overhead cost allocated to P56L = 7000*100.6 = 704200

b) Overhead cost allocated under ABC costing ;

Product B820 Machining (330000/15000*7000) = 154000 Machine setup cost (300000/500*200) = 120000 Product design (46000/2*1) = 23000 General factory (330000/10000*3000) = 99000 Total manufacturing overhead cost 396000

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