Question & Answer: Exercise9 Berg Company incurs $320,000 overhead costs each year in its three main departments, setup ($20,000), mac…..

Exercise9 Berg Company incurs $320,000 overhead costs each year in its three main departments, setup ($20,000), machining ($220,000), and packing ($80,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Bergs two products is as follows: Number of setups Machining hours Orders packed Number of products manufactured Product A1 Product B1 20 1,000 150 600 20 4,000 350 400 1) Under the traditional system if the machining hours are used as a base, how much overhead is assigned to Product A1 and Product 2 each year? 2) Using ABC, how much overhead is assigned to Product A1 each year? 3) Using ABC, how much overhead is assigned to Product B1 each year?

Exercise9 Berg Company incurs $320,000 overhead costs each year in its three main departments, setup ($20,000), machining ($220,000), and packing ($80,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Berg’s two products is as follows: Number of setups Machining hours Orders packed Number of products manufactured Product A1 Product B1 20 1,000 150 600 20 4,000 350 400 1) Under the traditional system if the machining hours are used as a base, how much overhead is assigned to Product A1 and Product 2 each year? 2) Using ABC, how much overhead is assigned to Product A1 each year? 3) Using ABC, how much overhead is assigned to Product B1 each year?

Expert Answer

 

Answer to Part 1

Particulars Product A1 Product B1
Machine Hours 1000 4000
Per Hour Rate 64 64
Overhead Applied 64000 256000
Working Note
Partiulars Amount
Total Overhead (A) 320000
Machine Hours (B) 5000
Overhead Per Hour (A/B) 64

Answer to Part 2 and Part 3

Activity Setup Machining Packing
Per Basis Cost (A) 500 44 160
Product A1 (B) 20 1000 150
Overhead Applied (A X B) 10000 44000 24000
Product B1 (C) 20 4000 350
Overhead Applied (A X C) 10000 176000 56000
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