Yang Manufacturing Company manufactures two products (A and B). The overhead cos

Question

Yang Manufacturing Company manufactures two products (A and B). The overhead costs (£60,000) have been divided into three cost pools that use the following activity cost drivers/location bases: Number of labour (A-15, B-10); Product Number of Orders (A-50, B-150); Transactions labour Hours (A-500, B-2,000). The amount of overhead cost to be assigned to Product B using labour hours as the allocation base is
Yang Manufacturing Company manufactures two products (A and B). The overhead costs (£60,000) have been divided into three cost pools that use the following activity cost drivers/location bases: Number of labour (A-15, B-10); Product Number of Orders (A-50, B-150); Transactions labour Hours (A-500, B-2,000). The amount of overhead cost to be assigned to Product B using labour hours as the allocation base is

Explanation / Answer

Overhead allocation rate based on labor hours

= Total overhead / Total labor hours

= £60,000 / (500 + 2,000)

= £24 per labor hour

So, Overhead allocation to product B

= Number of labor hours x Rate per hour

= 2,000 x £24

= £48,000

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