Allocate Overhead Case Study

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Activity-Based Costing to Allocate Overhead Costs The managers at Beneteau Company decided to use activity-based costing to allocate overhead in view of the point that its benefits would surpass the cost. With ABC, This costing use different cost groups which are organized according to different activities to allocate overhead costs. The production and maintenance of the product includes all activities such as purchasing materials, inventory management, assembling parts and verifying final products. It must be noted that the cost of activities must be allocated to the product based on their usage. The company has estimated total overhead costs to be $8,000,000. There are major five steps involved in the process of activity based costing:…show more content…
Step 5: Allocate overhead costs to products The final overhead cost allocated to products is calculated by multiplying the predetermined overhead rate (step 4) by the actual cost driver quantity used. The company has two offerings in their product portfolio– basic and deluxe sailboats. The company prefers to do a separate cost analysis for both offerings based on respective estimated cost drivers. The ABC costing provides a more transparent way to deal with costing of different products. Basic Sailboat Deluxe Sailboat Activity Predetermined Overhead Rate (in dollars) Estimated Annual Cost Driver Overhead Allocated Estimated Annual Cost Driver Overhead Allocated Purchasing Materials 120 7,000 840,000 3,000 360,000 Inventory Management 800 1,000 880,000 9,000

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