Describing the allocation of overheads
Managerial Accounting
ABC currently employs traditional costing procedures, applying $410,000 of overhead to products X and Y on the basis of direct labor hours. The firm is considering the shift to activity-based costing and creation of individual cost pools that will employ direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes is:
Pool #1 Pool #2 Pool #3
Product (DLH) (SU) (PC)
X 900 30 1,500
Y 1,400 50 1,000
Pool Cost $90,000 $140,000 $180,000
A) Overhead cost allocated to product Y by using traditional costing procedures would be:
B) Overhead cost allocated to product Y by using activity-based costing would be:
