Delauder 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 activity-based costing system are listed below: The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon 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 activity-based costing system, the total cost of the activity "Processing batches" for this customer this past year was closest to:
A) $1,049.55
B) $83.05
C) $193.30
D) $966.50

Question

Delauder 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 activity-based costing system are listed below:  The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon 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 activity-based costing system, the total cost of the activity "Processing batches" for this customer this past year was closest to:
A) $1,049.55 
B) $83.05 
C) $193.30 
D) $966.50

Quizplus · Accepted Answer

First, we need to calculate the cost allocation rate for each activity cost pool:

- Processing Batches: $10,700 / 100 batches = $107 per batch
- Product Testing: $14,300 / 143 tests = $100 per test
- Customer Support: $19,200 / 12 customers = $1,600 per customer
- Other Overhead: $8,400 / 1,200 machine hours = $7 per machine hour

Next, we need to allocate the costs for Grennon Corporation's purchase using the activity cost rates:

- Processing Batches: 16 batches x $107 per batch = $1,712
- Product Testing: 2 tests x $100 per test = $200
- Customer Support: 1 customer x $1,600 per customer = $1,600
- Other Overhead: 46 machine hours x $7 per machine hour = $322

Therefore, the total cost of serving Grennon Corporation for the year is $1,712 + $200 + $1,600 + $322 = $3,834.

However, the question specifically asks for the cost of the activity "Processing Batches" for this customer. So, we only need to consider the cost allocated to Processing Batches, which is $1,712.

Therefore, the closest answer is option D: $966.50.

Delauder Enterprises Makes a Variety of Products That It Sells