XYZ company makes 2 products and is now considering adopting an ABC approach to allocating their $500,000 of overhead between 2 activities: assembly, with a total cost of $300,000, and quality control, with a total cost of $200,000. Assembly uses machine hours as its cost driver, quality control uses inspection hours as its cost driver. Product A uses 15,000 machine hours and 10,000 inspection hours. Product B uses 5,000 machine hours and 15,000 inspection hours. Using ABC, what amount of overhead should be allocated to Product B?
XYZ company makes 2 products and is now considering adopting an ABC approach to allocating their $500,000 of overhead between 2 activities: assembly, with a total cost of $300,000, and quality control, with a total cost of $200,000. Assembly uses machine hours as its cost driver, quality control uses inspection hours as its cost driver. Product A uses 15,000 machine hours and 10,000 inspection hours. Product B uses 5,000 machine hours and 15,000 inspection hours. Using ABC, what amount of overhead should be allocated to Product B?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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XYZ company makes 2 products and is now considering adopting an ABC approach to allocating their $500,000 of overhead between 2 activities: assembly, with a total cost of $300,000, and quality control, with a total cost of $200,000. Assembly uses machine hours as its cost driver, quality control uses inspection hours as its cost driver. Product A uses 15,000 machine hours and 10,000 inspection hours. Product B uses 5,000 machine hours and 15,000 inspection hours. Using ABC, what amount of overhead should be allocated to Product B?
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