Reference no: EM132385775

Question

Isadore's Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the following data:

Cost Driver VolumeActivityCost DriverCostPencilsPensSetting upNumber of setups$94,000 1928InspectingNumber of parts 28,800 36Packing and shippingNumber of boxes shipped 72,000 40,00080,000Total overhead $194,800

Required:

a. Compute the amount of overhead to be allocated to each product under activity-based costing.

b. Compute the amount of overhead to be allocated to each product using labor-hours as the allocation base. Assume that the number of labor-hours required to assemble each box is 0.1 for pencils and 0.2 for pens and that 40,000 boxes of pencils and 80,000 boxes of pens were produced during the period.