Leather Company makes two types of women's handbags. Making a standard handbag requires 2 hours of labor while making a deluxe handbag requires 5 hours of labor. During the next year, the company expects to make 2,000 standard handbags and 500 deluxe handbags. Indirect manufacturing costs are expected to be $52,000. Based on this information:

A. $8 of overhead cost should be allocated to each handbag of both types.

B. $20.80 of overhead cost should be allocated to each handbag of both types.

C. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag.

D. None of these

Question

Business

Jeffrey Moyer

25 April, 22:50

Leather Company makes two types of women's handbags. Making a standard handbag requires 2 hours of labor while making a deluxe handbag requires 5 hours of labor. During the next year, the company expects to make 2,000 standard handbags and 500 deluxe handbags. Indirect manufacturing costs are expected to be $52,000. Based on this information:

A. $8 of overhead cost should be allocated to each handbag of both types.

B. $20.80 of overhead cost should be allocated to each handbag of both types.

C. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag.

D. None of these

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Answers (1)

Know the Answer?

Nathaly Villegas · Answer 1

C. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag.

Explanation:

Given that

Total indirect manufacturing expected = $52000

And,

Total hours required to manufacture handbags is

= (2,000 standard handbags * 2 hours) + (500 deluxe handbags * 5 hours)

= 4,000 + 2,500

= 6,500

So,

Indirect cost per hour is

= $52000 : 6500

= $8 per hour

Now

Cost allocated to standard handbags is

= $8 * 2

= $16

And, for deluxe handbag it is

= $8 * 5

= $40