Reynoso corporation manufactures titanium and aluminum tennis racquets. reynoso’s total overhead costs consist of assembly costs and inspection costs. the following information is available:

cost titaniium aluminum total cost

assembly 500 mach. hours 500 mach. hours $60,000
inspections 350 250 $100,000
2,100 labor hours 1,900 labor hours

reynoso is considering switching from one overhead rate based on labor hours to activity-based costing.
total overhead costs assigned to titanium racquets, using a single overhead rate, are

(a) $80,000.
(b) $84,000.
(c) $100,000
(d) $112,000.

Option (B) is correct.

Explanation:

The total overhead costs comprise :

= Assembly + Inspections

= $60,000 + $100,000

= $160,000

Total direct labor (DL) hours:

= Titanium 2,100 + Aluminium 1,900

= 4,000 hours.

Overhead based on DL hours:

= (Total overhead × Number of DL hours for Titanium) ÷ Total number of DL hours

= ($160,000 × 2,100) ÷ 4,000

= $84,000

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