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ACTIVITY-BASED COSTING

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Globe Company produces two products, A1 and B2. A1 is a high-volume item totaling 20,000 units annually. B2 is a low-volume item totaling only 6,000 units per year. A1 requires one hour of direct labor for completion, while each unit of B2 requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Globe uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of B2 would be assigned overhead of
a. $20.00.
b. $24.61.
c. $40.00.
d. need more information to compute.

can somebody explain to me how the answer is C?

  • ACTIVITY-BASED COSTING -

    640,000/32,000 = 20
    20*2 = 40
    C. 40

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