Performance Bicycle Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, Barr Company made 7,000 steel bars and 3,000 titanium bars. Setup costs amounted to $84,000. One batch of each type of bar was run each month. If a single company-wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be:

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5 July, 00:11

Performance Bicycle Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, Barr Company made 7,000 steel bars and 3,000 titanium bars. Setup costs amounted to $84,000. One batch of each type of bar was run each month. If a single company-wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be:

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Sammy Bright · Answer 1

Particulars Steel Bars Titanium Bars

Units Per Batch 7000 3000

Hours Per Unit 1 1

Total Hours 7000 3000

Overhead rate on the basis of direct labor = Total Overhead / Total labor hours = 84,000/10,000 i. e 8.40

Overhead cost allocated to steel bars = 8.40*7000 = 58,800