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St. James, Inc., currently uses traditional costing procedures,applying $800,000 of overhead to products Beta...

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Accounting

St. James, Inc., currently uses traditional costing procedures,applying $800,000 of overhead to products Beta and Zeta on thebasis of direct labor hours. The company is considering a shift toactivity-based costing and the creation of individual cost poolsthat will use direct labor hours (DLH), production setups (SU), andnumber of parts components (PC) as cost drivers. Data on the costpools and respective driver volumes follow.

The overhead cost allocated to Beta by usingactivity-based costing procedures would be:

Pool 1 Pool 2 Pool 3
Beta 1200 45 2250

Zeta 2800 55 750

Pool Cost $160,000 $280,000 $360,000

Answer & Explanation Solved by verified expert
4.2 Ratings (866 Votes)

  • All working forms part of the answer
  • Working for allocation using Activity based costing

Working

Pool 1

Pool 2

Pool 3

TOTAL

A

Pool Cost

$                                 160,000.00

$                280,000.00

$                                   360,000.00

$       800,000.00

No. of Drivers:

1

   For Beta

                                               1,200

                                    45

                                                 2,250

2

   For Zeta

                                               2,800

                                    55

                                                     750

B = 1+2

Total Drivers

                                               4,000

                                  100

                                                 3,000

C = A/B

Cost per driver

$                                           40.00

$                     2,800.00

$                                           120.00

D = C x 1

Overhead cost allocated to Beta

$                                   48,000.00

$                126,000.00

$                                   270,000.00

$       444,000.00 = ANSWER

  • Answer: Overhead cost allocated to Beta = $ 444,000
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Transcribed Image Text

In: AccountingSt. James, Inc., currently uses traditional costing procedures,applying $800,000 of overhead to products Beta and...St. James, Inc., currently uses traditional costing procedures,applying $800,000 of overhead to products Beta and Zeta on thebasis of direct labor hours. The company is considering a shift toactivity-based costing and the creation of individual cost poolsthat will use direct labor hours (DLH), production setups (SU), andnumber of parts components (PC) as cost drivers. Data on the costpools and respective driver volumes follow.The overhead cost allocated to Beta by usingactivity-based costing procedures would be:Pool 1 Pool 2 Pool 3Beta 1200 45 2250Zeta 2800 55 750Pool Cost $160,000 $280,000 $360,000

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