Comparing ABC and Plantwide Overhead Cost Assignments Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment $350,000
Other overheard $1,320,000

Setting up equipment is based on setup hours, and other overhead is based on oven hours. Wellington produces two products, Fudge and Cookies. Information on each product is as follows:

Fudge Cookies
Units produced 8,000 445,000
Setup hours 5,600 1,400
Oven hours 1,000 7,000

How much total overhead is assigned to Fudge using ABC?

Allocated Overhead= $445,000

Explanation:

Giving the following information:

Setting up equipment= $350,000

Other overheard= $1,320,000

Fudge Cookies

Units produced 8,000

Setup hours 5,600 1,400= 7,000

Oven hours 1,000 7,000= 8,000

To allocate overhead to Fudge based on each activity cost pool, first, we need to calculate the predetermined overhead rate for any individual cost pool.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Setting up:

Estimated manufacturing overhead rate= 350,000/7,000= $50 per setup hour

Other:

Estimated manufacturing overhead rate= 1,320,000/8,000= $165 per oven hour.

Now, we can allocate overhead to Fudge:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= (50*5,600) + (165*1,000)= $445,000

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