Cottonwood,Inc.produces two different products (Standard and Luxury)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Standard uses 30% of total machine hours and 70% of total batches.What is the total activity cost assigned to Luxury?
A)$7,500
B)$171,000
C)$375,000
D)$359,000

Question

Quizplus · Accepted Answer

Luxury uses 70% of the machine hours (100% - 30% for Standard) and 30% of the batches (100% - 70% for Standard). The cost assigned to Luxury for Machining is 70% of $500,000 = $350,000. The cost assigned to Luxury for Inspection is 30% of $30,000 = $9,000. The total activity cost for Luxury is $350,000 + $9,000 = $359,000.