Thomsen Computer Company produces three products: Earth, Wind, and Fire. Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Thomsen has identified an activity cost pool with allocated overhead of $960,000 for which the cost driver is machine setups.

How much overhead is assigned to each product? Earth Wind Fire
Select one:
A. $320,000 $320,000 $320,000
B. $200,000 $150,000 $450,000
C. $240,000 $180,000 $540,000
D. $180,000 $320,000 $460,000

Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Thomsen has identified an activity cost pool with an allocated overhead of $960,000 for which the cost driver is machine setups.

First, we need to calculate the manufacturing overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 960,000/ 320= $3,000 per machine set up

Now, we can allocate overhead based on machine set up:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Earth Allocated MOH= 3,000*80= $240,000

Wind Allocated MOH= 3,000*60= $180,000

Fire Allocated MOH= 3,000*180= $540,000