Performance Bicycle Company makes steel and titanium handlebars for bicycles. It requires approximately one hour of labor to make one handlebar of either type. During the most recent accounting period, Barr Company made 7,900 steel bars and 2,100 titanium bars. Setup costs amounted to $33,000. One batch of each type of bar was run each month. If a single companywide 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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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2022-07-15T19:15:53+02:00

The amount of setup cost assigned to the steel bars will be:$26,070.

First step

Overhead rate on the basis of direct labor = Total Overhead / Total labor hours

Overhead rate on the basis of direct labor=33,000/(7900+2100)

Overhead rate on the basis of direct labor = 33,000/10,000

Overhead rate on the basis of direct labor =3.3

Second step

Overhead cost allocated to steel bars:

Overhead cost allocated to steel bars = 3.3×7900

Overhead cost allocated to steel bars= $26,070

Therefore the amount of setup cost assigned to the steel bars will be:$26,070.

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