Linden,Inc.uses a 5,000 square foot factory space that it rents for $2,500 a month for all its manufacturing activities.Linden has decided to switch to an activity-based costing system,and has identified its activities as follows: Preparation and Setup,Machining,Finishing,and Quality Control.500 square feet of the factory are used for machining,while 2,000 square feet (each)are used for Preparation and Setup and Quality Control.Finishing uses 500 square feet.When assigning indirect costs to each activity,how much factory rent should be assigned to the Preparation and Setup cost pool?
A)$250
B)$500
C)$1,000
D)$2,000

Question

Quizplus · Accepted Answer

The total factory rent is $2,500 per month for the entire 5,000 square foot factory space. To assign rent to each activity cost pool, we need to determine the percentage of factory space used by each activity.

- Machining uses 500/5000 = 10% of the factory space
- Finishing uses 500/5000 = 10% of the factory space
- Preparation and Setup and Quality Control each use 2,000/5000 = 40% of the factory space

Therefore, 40% of the factory rent should be assigned to the Preparation and Setup cost pool:
40% x $2,500 = $1,000

So, the correct answer is choice C.