Question

Donatello Co. has identified an activity cost pool to which it has allocated estimated overhead of $9,600,000. It has determined the expected use of cost drivers for that activity to be 800,000 inspections. Widgets require 200,000 inspections, Gadgets 150,000 inspections, and Targets 450,000 inspections. How much is the overhead assigned to each product

Answer 1

$9,600,000

Step-by-step explanation:

The computation of overhead assigned to each product is shown below:-

Overhead rate activity = Total overhead cost ÷ Total number of activity

= $9,600,000 ÷ $800,000

= $12

So, the Total overhead assigned to each product = (Widgets × Overhead rate activity) + (Gadgets × Overhead rate activity) + (Targets × Overhead rate activity)

= ($200,000 × 12) + ($150,000 × 12) + ($450,000 × 12)

= 2,400,000 + 1,800,000 + 5,400,000

= $9,600,000

Therefore for computing the overhead assigned to each product we simply applied the above formula.