Mustafa Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below: The cost of serving customers, $2,737.00 per customer, is the cost of serving a customer for one year. Dahle Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the ABC system, the total cost of the activity "Supporting assembly" for this customer this past year was closest to:
A) $6,000.00
B) $3.00
C) $320.00
D) $2,400.00

Question

Mustafa Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:  The cost of serving customers, $2,737.00 per customer, is the cost of serving a customer for one year. Dahle Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
 According to the ABC system, the total cost of the activity "Supporting assembly" for this customer this past year was closest to:
A) $6,000.00 
B) $3.00 
C) $320.00 
D) $2,400.00

Quizplus · Accepted Answer

Based on the ABC system, the total cost of supporting assembly for the customer can be calculated using the following formula: 
Total cost of Supporting Assembly = Supporting Assembly Activity Rate x Supporting Assembly Cost Driver.
From the above table, we can find that the Supporting Assembly cost driver for Dahle Corporation is 800 machine hours. 
The Supporting Assembly Activity Rate can be calculated as follows:
Supporting Assembly Activity Rate = Total Supporting Assembly Cost / Total Supporting Assembly Cost Driver
= $480,000 / 120,000 machine hours = $4.00 per machine hour

Therefore, the total cost of Supporting Assembly for Dahle Corporation can be calculated as 
Total cost of Supporting Assembly = Supporting Assembly Activity Rate x Supporting Assembly Cost Driver
= $4.00 per machine hour x 800 machine hours = $3,200.00

Since Dahle Corporation is the only customer for this product, the cost of supporting assembly for this customer is the same as the total cost of supporting assembly for this product. 
Hence, the closest answer is D) $2,400.00.

Mustafa Enterprises Makes a Variety of Products That It Sells