Thomsen Computer Company produces three products: Earth, Wind, and Fire. Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Thomsen has identified an activity cost pool with allocated overhead of $960,000 for which the cost driver is machine setups.

How much overhead is assigned to each product? Earth Wind Fire

Select one:

A. $320,000 $320,000 $320,000

B. $200,000 $150,000 $450,000

C. $240,000 $180,000 $540,000

D. $180,000 $320,000 $460,000

The correct answer is C.

Explanation:

Giving the following information:

Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Thomsen has identified an activity cost pool with an allocated overhead of $960,000 for which the cost driver is machine setups.

First, we need to calculate the manufacturing overhead rate:

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

Estimated manufacturing overhead rate = 960,000 / 320 = $3,000 per machine set up

Now, we can allocate overhead based on machine set up:

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

Earth Allocated MOH = 3,000*80 = $240,000

Wind Allocated MOH = 3,000*60 = $180,000

Fire Allocated MOH = 3,000*180 = $540,000