Cleveland Choppers manufactures two types of motorcycles, a Base and a Loaded model. The following activity and costs have been gathered: Product Number of Components Number of Setups Number of Direct Labor Hrs Base 15 20 700 Loaded 25 40 600 Overhead costs $27,000 $22,500 The number of components and number of setups are chosen as activity-cost drivers for overhead. Assuming an ABC costing system is being used, what is the total overhead cost assigned to the Base model?

Total overhead cost for Base model = $17,625

Explanation:

Under the ABC method,

Setup cost = Overhead cost ÷ Number of Setups.

Given,

Overhead cost = $22,500

Number of Setups = Base + Loaded = 20 + 40 = 60

Therefore, setup cost = $22,500 ÷ 60 = $375

Component cost = Overhead cost ÷ Number of components

Given,

Overhead cost = $27,000

Number of component = Base + Loaded = 15 + 25 = 40

Therefore, Components cost = $27,000 ÷ 40 = $675

Total overhead cost for Base model = (Setup cost × Number of Setups for Base) + (Component cost × Number of components for Base)

Total overhead cost for Base model = ($375 × 20) + ($675 × 15)

Total overhead cost for Base model = ($7,500 + $10,125) = $17,625

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