Tom Company incurs overhead costs each year in its three main departments, setup ($70,000), machining ($34,000), and packing ($56,000). Information about the company's two products is as follows: Product A1 Product B1 Total
Number of setups 7 33 40
Machining hours 2,800 2,200 5,000
Orders packed 280 220 500
Number of products manufactured 560 440 1,000
If machining hours are used as a base under traditional costing, how much overhead is assigned to Product A1?

Allocated MOH= $89,600

Explanation:

Giving the following information:

Tom Company incurs overhead costs each year in its three main departments, setup ($70,000), machining ($34,000), and packing ($56,000).

Product A1 Product B1 Total

Number of setups 7 33 40

Machining hours 2,800 2,200 5,000

Orders packed 280 220 500

Number of products manufactured 560 440 1,000

Under the traditional costing system, the company applies overhead based on a single plantwide predetermined overhead rate.

First, we need to calculate the predetermined overhead rate:

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

Predetermined manufacturing overhead rate= 160,000/ 5,000

Predetermined manufacturing overhead rate= $32 per machine hour

Now, we can apply overhead:

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

Allocated MOH= 32*2,800= $89,600

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