Pawnee Inc. is an outdoor sporting goods company that produces tents and sleeping bags that it sells online. Pawnee has implemented Activity-Based Costing (ABC) and is in the process of compiling a budget for the coming year. Their Manufacturing Overhead (MOH) is comprised of the following costs:
Setups $120,000 (28,000 setups)
Quality inspections 98,000 (20,000 inspections)
Assembly supervisor wages 160,000 (40,000 hours)
Pawnee anticipates the production of 10,000 tents and 14,000 sleeping bags. Each product is projected to use company resources in the following manner:
What is the ABC-based total MOH cost allocated per unit for the sleeping bags? (If required, round calculations to two decimal places.)

Question

Pawnee Inc. is an outdoor sporting goods company that produces tents and sleeping bags that it sells online. Pawnee has implemented Activity-Based Costing (ABC) and is in the process of compiling a budget for the coming year. Their Manufacturing Overhead (MOH) is comprised of the following costs:
Setups $120,000 (28,000 setups)
Quality inspections 98,000 (20,000 inspections)
Assembly supervisor wages 160,000 (40,000 hours)
Pawnee anticipates the production of 10,000 tents and 14,000 sleeping bags. Each product is projected to use company resources in the following manner:
 What is the ABC-based total MOH cost allocated per unit for the sleeping bags? (If required, round calculations to two decimal places.)

Quizplus · Accepted Answer

First, calculate the activity-based rate for each of the MOH activities: Setups, $120,000/28,000 setups = $4.29/setup; quality inspections, $98,000/20,000 inspections = $4.90/inspection; and assembly supervisor wages, $160,000/40,000 hours = $4.00/hour. Next, calculate the total MOH cost for the sleeping bags: ($4.29 × 16,500 setups) + ($4.90 × 11,400 inspections) + ($4.00 × 23,300 hours) = $70,785.00 + $55,860.00 + $93,200.00 = $219,845.00. Lastly, divide the total sleeping bag MOH cost by the number of sleeping bags to be produced: $219,845/14,000 sleeping bags = $15.70 per sleeping bag (Choice B).