Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso’

Question

Reynoso Corporation manufactures titanium and aluminum tennis racquets. Reynoso’s total overhead costs consist of assembly costs and inspection costs. The following information is available:

Reynoso is considering switching from one overhead rate based on labor hours to activity-based costing.
Using activity-based costing, how much assembly cost is assigned to titanium racquets?

Cost Titanium Aluminum Total Cost Assembly 500 mach. hours 500 mach. hours $50000 Inspections 350 150 $90000 2100 labor hours 1900 labor hours

Explanation / Answer

Overhead rate applied = Total overhead /total activity hours

                                         = $ 50,000/ (500 + 500) MH

                                         = $ 50,000/1,000 = $ 50 PMH

Overhead cost for assembly of Titanium = No. of machine hours x overhead rate PMH

                                                         = 500 x $ 50 = $ 25,000

Hence option “$ 25,000” is correct answer.

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