Question

Sitwell Corporation manufactures titanium and aluminum tennis racquets. Sitwell’s total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Titanium Aluminum Total Cost Assembly 500 mach. hours 500 mach. hours $45,000 Inspections 350 150 $75,000 2,100 labor hours 1,900 labor hours Sitwell is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much "assembly cost is assigned to titanium racquets"?

Answer 1

Answer:

$22,500

Explanation:

Activity based costing (ABC) is a method of cast allocation where the overheads and other indirect costs are  allocated to products and services based on the volume of different activities consumed by each product.

The total cost pool is divided by the defined cost drivers to determine the cost driver rate.

                       Titanium Hours    Aluminium hours                  Cost

Assembly                   500                      500         1000           45000

Inspection                   350                      150           500            75000

Labor hours               2100                      1900        4000          120000

Cost per labor hour   = 120000/4000= 30

Using activity based costing , portion of the assembly cost assigned to titanium Racquets =   Titanium assembly hours / total assembly hours * total assembly cost

500/1000*45000

=22,500