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13 March, 20:48

Cleveland Choppers manufactures two types of motorcycles, a Base and a Loaded model. The following activity and costs have been gathered: Product Number of Components Number of Setups Number of Direct Labor Hrs Base 15 20 700 Loaded 25 40 600 Overhead costs $27,000 $22,500 The number of components and number of setups are chosen as activity-cost drivers for overhead. Assuming an ABC costing system is being used, what is the total overhead cost assigned to the Base model?

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  1. 13 March, 23:14
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    Total overhead cost for Base model = $17,625

    Explanation:

    Under the ABC method,

    Setup cost = Overhead cost : Number of Setups.

    Given,

    Overhead cost = $22,500

    Number of Setups = Base + Loaded = 20 + 40 = 60

    Therefore, setup cost = $22,500 : 60 = $375

    Component cost = Overhead cost : Number of components

    Given,

    Overhead cost = $27,000

    Number of component = Base + Loaded = 15 + 25 = 40

    Therefore, Components cost = $27,000 : 40 = $675

    Total overhead cost for Base model = (Setup cost * Number of Setups for Base) + (Component cost * Number of components for Base)

    Total overhead cost for Base model = ($375 * 20) + ($675 * 15)

    Total overhead cost for Base model = ($7,500 + $10,125) = $17,625
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