Silver Faces, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the budgeted maintenance cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

Question

Silver Faces, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed:  What is the budgeted maintenance cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

Quizplus · Accepted Answer

Using the activity-based costing formula, we can calculate the budgeted maintenance cost as follows:

Budgeted maintenance cost = Maintenance cost per machine hour x Number of machine hours + Maintenance cost per batch x Number of batches + Maintenance cost per purchase order x Number of purchase orders

Plugging in the given values:

Budgeted maintenance cost = ($1.50 x 8,000) + ($1,000 x 25) + ($0.20 x 15,000) = $12,000 + $25,000 + $3,000 = $40,000

Therefore, the budgeted maintenance cost for producing 50,000 reflectors would be $47,000 (adding the direct labor and material costs to the maintenance cost). Thus, the best choice is C.